Law and Financial Development: What We are Learning from Time-Series Evidence

53 Pages Posted: 10 Apr 2010  

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

Viviana Mollica

Queen Mary, University of London

Mathias M. Siems

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

Date Written: March 2010

Abstract

The legal origins hypothesis is one of the most important and influential ideas to emerge in the social sciences in the past decade. However, the empirical base of the legal origins claim has always been contestable, as it largely consists of cross-sectional datasets which provide evidence on the state of the law only at limited points in time. There is now a growing body of data derived from techniques for coding cross-national legal variation over time. This time-series evidence is reviewed here and is shown to cast new light on some of the central claims of legal origins theory. Legal origins are shown to be of little help in explaining trends in the law relating to shareholder protection, although the classification of legal systems into English-, French- and German-origin ‘families’ has greater explanatory force in the context of creditor rights. The widely-held view that increases in shareholder rights foster financial development is not supported by time-series analyses. More generally, the new evidence casts doubt on the suggestion that legal origins operate as an ‘exogenous’ force, independently shaping both the content of laws and economic outcomes. It is more plausible to see legal systems as evolving in parallel with changes in economic conditions and political structures at national level.

Keywords: legal origins, law and finance, comparative law, shareholder protection, creditor protection, time series analysis

JEL Classification: G33, G34, G38, K22

Suggested Citation

Armour, John and Deakin, Simon and Mollica, Viviana and Siems, Mathias M., Law and Financial Development: What We are Learning from Time-Series Evidence (March 2010). ECGI - Law Working Paper No. 148/2010. Available at SSRN: https://ssrn.com/abstract=1580120

John Armour

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 (Contact Author)

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

Viviana Mollica

Queen Mary, University of London ( email )

Mile End Road
London, London E1 4NS
United Kingdom

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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