Common Law vs. Civil Law: Which System Provides More Protection to Shareholders and Creditors and Promotes Financial Development

65 Pages Posted: 22 Aug 2011

Date Written: August 21, 2011

Abstract

This study re-examines the theory of legal-origin on the basis of a new longitudinal dataset for four OECD countries (UK, USA, France and Germany) over a long time span 1970-2005. It observes that the civil law countries (France and Germany) provided better minority shareholder protection and creditor protection relating to debtors’ control while the common law countries (UK and USA) provided better creditor protection relating to credit contract and insolvency. Through dynamic panel data modelling our study shows that minority shareholder protection has a long-term favourable effect only on stock market listing of firms and debtors’ control has a similar effect on credit market expansion while the credit contract component of creditor protection has the opposite effect. Thus, our study questions the proposition that common-law countries provide more protection to their shareholders and creditors; it also casts doubt on the related proposition that shareholder and creditor protection promotes financial development.

Keywords: Shareholder protection, Creditor Protection, Investor Protection, Corporate Governance, Law and Finance.

JEL Classification: G30, G38, K22, K40

Suggested Citation

Sarkar, Prabirjit, Common Law vs. Civil Law: Which System Provides More Protection to Shareholders and Creditors and Promotes Financial Development (August 21, 2011). Available at SSRN: https://ssrn.com/abstract=1913624 or http://dx.doi.org/10.2139/ssrn.1913624

Prabirjit Sarkar (Contact Author)

University of Cambridge ( email )

Centre for Business Research
Cambridge, CB2 1AG
United Kingdom

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Downloads
932
Abstract Views
4,845
rank
31,129
PlumX Metrics