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The Failings of Legal Centralism for Helping Stock Markets in Transition

Politicka Ekonomie, Vol. 10, No. 1, pp. 22-34, January 2006

13 Pages Posted: 10 Sep 2010  

Edward Peter Stringham

Trinity College

Peter J. Boettke

George Mason University - Department of Economics

Date Written: 2006

Abstract

After Czech voucher privatization many companies simply ignored the interests of their shareholders. The government has since increased the amount of regulation, but they have failed to establish significant investor confidence. This article offers some explanations of why their legal centric approach remains unlikely to create good corporate governance. Mandating that companies maximize shareholder value is easier said than done because it requires government to assess whether companies are making optimal business decisions. In former communist countries especially, government officials are ill suited to make such judgments because they lack the knowledge of how businesses should be properly run. In creased bureaucratic oversight in the Czech Republic has simply burdened markets without any notice able positive results. This article discusses how good corporate governance can only be a by pro duct of markets where managers compete for investors rather than something that can be created by law.

Keywords: Czech Stock Market Transition, Regulation, Corporate Governance, Legal Centralism

JEL Classification: G1, K2, P2

Suggested Citation

Stringham, Edward Peter and Boettke, Peter J., The Failings of Legal Centralism for Helping Stock Markets in Transition (2006). Politicka Ekonomie, Vol. 10, No. 1, pp. 22-34, January 2006. Available at SSRN: https://ssrn.com/abstract=1674472

Edward Peter Stringham (Contact Author)

Trinity College ( email )

United States

Peter J. Boettke

George Mason University - Department of Economics ( email )

4400 University Drive
Fairfax, VA 22030
United States
703-993-1149 (Phone)
703-993-1133 (Fax)

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