How Do Legal Rules Evolve? Evidence from a Cross-Country Comparison of Shareholder, Creditor and Worker Protection

European Corporate Governance Institute - Law Working Paper No. 129/2009

Centre for Business Research, University of Cambridge Working Paper No. 382

62 Pages Posted: 7 Jul 2009  

John Armour

University of Oxford - Faculty of Law; University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Simon Deakin

University of Cambridge - Centre for Business Research (CBR); European Corporate Governance Institute (ECGI); University of Cambridge - Faculty of Law

Priya Lele

Ashurst LLP; University of Cambridge - Centre for Business Research (CBR)

Mathias M. Siems

Durham University - Durham Law School; University of Cambridge - Centre for Business Research

Date Written: July 7, 2009

Abstract

Much attention has been devoted in recent literature to the claim that a country’s ‘legal origin’ may make a difference to its pattern of financial development and more generally to its economic growth path. Proponents of this view assert that the ‘family’ within which a country’s legal system originated, be it common law, or one of the varieties of civil law, has a significant impact upon the quality of its legal protection of shareholders, which in turn impacts upon economic growth, through the channel of firms’ access to external finance. Complementary studies of creditors’ rights and labour regulation have buttressed the core claim that different legal families have different dynamic properties. Specifically, common law systems are thought to be better able to respond to the changing needs of a market economy than are civilian systems. This literature has, however, largely been based upon cross-sectional studies of the quality of corporate, insolvency and labour law at particular points in the late 1990s. In this paper, we report findings based on newly constructed indices which track legal change over time in the areas of shareholder, creditor and worker protection. The indices cover five systems for the period 1970-2005: three ‘parent’ systems, the UK, France and Germany; the world’s most developed economy, the US; and its largest democracy, India. The results cast doubt on the legal origin hypothesis in so far as they show that civil law systems have seen substantial increases in shareholder protection over the period in question. The pattern of change differs depending on the area which is being examined, with the law on creditor and worker protection demonstrating more divergence and heterogeneity than that relationg to shareholders. The results for worker protection are more consistent with the legal origin claim than in the other two cases, but this overall result conceals significant diversity within the two ‘legal families,' with different countries relying on different institutional mechanisms to regulate labour. Until the late 1980s the law of the five countries was diverging, but in the last 10-15 years there has been some convergence, particularly in relation to shareholder protection.

Keywords: legal origin, corporate governance, company law, insolvency law, labour law

JEL Classification: G38, K22, K31, P50

Suggested Citation

Armour, John and Deakin, Simon and Lele, Priya and Siems, Mathias M., How Do Legal Rules Evolve? Evidence from a Cross-Country Comparison of Shareholder, Creditor and Worker Protection (July 7, 2009). European Corporate Governance Institute - Law Working Paper No. 129/2009. Available at SSRN: https://ssrn.com/abstract=1431008 or http://dx.doi.org/10.2139/ssrn.1431008

John Armour (Contact Author)

University of Oxford - Faculty of Law ( email )

Oriel College
Oxford, OX1 4EW
United Kingdom
+44 1865 286544 (Phone)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Simon F. Deakin

University of Cambridge - Centre for Business Research (CBR) ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom
+ 44 1223 335243 (Phone)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

University of Cambridge - Faculty of Law ( email )

10 West Road
Cambridge, CB3 9DZ
United Kingdom

Priya P. Lele

Ashurst LLP ( email )

Broadwalk House
5 Appold Street
London, EC2A 2HA
Great Britain

University of Cambridge - Centre for Business Research (CBR) ( email )

Judge Business School Building - Top Floor
Trumpington Street
Cambridge CB2 1AG
United Kingdom
01223 765325 (Phone)

Mathias M. Siems

Durham University - Durham Law School ( email )

Stockton Road
Durham, County Durham DH1 3LE
United Kingdom

HOME PAGE: http://www.dur.ac.uk/mathias.siems

University of Cambridge - Centre for Business Research ( email )

Top Floor, Judge Business School Building
Trumpington Street
Cambridge, CB2 1AG
United Kingdom

HOME PAGE: http://www.cbr.cam.ac.uk/people/research-associates/mathias-m-siems/

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