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An End to Consensus? The Selective Impact of Corporate Law Reform on Financial Development

33 Pages Posted: 28 Sep 2011 Last revised: 10 Nov 2011

Simon Deakin

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

Prabirjit Sarkar

affiliation not provided to SSRN

Ajit Singh

United Nations; University of Cambridge

Date Written: September 1, 2011

Abstract

Legal origins theory suggests that law reform should have a causal impact on financial development. We use recently created datasets measuring legal change over time in a sample of 25 developing, developed and transition countries to test this claim. We find that increases in shareholder protection contribute to stock market growth in the common law world and in developing countries, but not in the civil law world. We also find evidence of reverse causation, with financial development triggering legal changes in the developing world. We consider a number of reasons for the selective impact of law reform, focusing on the endogeneity of the legal system to its economic context, and on resulting complementarities between legal and financial institutions.

Keywords: legal origins, company law, shareholder rights, creditor rights, financial development

JEL Classification: G33, G34, K22, O16

Suggested Citation

Deakin, Simon and Sarkar, Prabirjit and Singh, Ajit, An End to Consensus? The Selective Impact of Corporate Law Reform on Financial Development (September 1, 2011). University of Cambridge Faculty of Law Research Paper No. 40/2011; ECGI - Law Working Paper No. 182/2011. Available at SSRN: https://ssrn.com/abstract=1934737 or http://dx.doi.org/10.2139/ssrn.1934737

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

Prabirjit Sarkar

affiliation not provided to SSRN

Ajit Singh

United Nations ( email )

New York, NY 10017
United States

University of Cambridge ( email )

Austin Robinson Building
Sidgwick Avenue
Cambridge, CB3 9DD
United Kingdom
+ 44 1223 350434 (Phone)
+ 44 1223 740479 (Fax)

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