Is There a Relationship Between Shareholder Protection and Stock Market Development?

38 Pages Posted: 29 Nov 2017  

Simon Deakin

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

Prabirjit Sarkar

University of Cambridge

Mathias M. Siems

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

Multiple version iconThere are 3 versions of this paper

Date Written: November 2017

Abstract

The paper uses recently created datasets measuring legal change over time in a sample of 28 developed and emerging economies to test whether the strengthening of share-holder rights in the course of the mid-1990s and 2000s promoted stock market development in those countries. It finds only weak and equivocal evidence of a positive effect of shareholder protection on market capitalisation, the value of stock trading, and the turnover ratio, and a negative impact on the number of listed companies. There is stronger evidence of reverse causality, in the sense of stock market development at country level generating changes in shareholder protection law. We conclude, firstly, that legal reforms were at least in part an endogenous response to stock market development and not simply a reaction to the generation of global standards; but, secondly, that the laws passed in response to the demand for shareholder empowerment did not consistently have the expected impact on financial markets, and may have had some negative and perverse results.

Keywords: corporate governance, shareholder protection, financial development, stock market development

JEL Classification: G33, G34, K22, O16

Suggested Citation

Deakin, Simon and Sarkar, Prabirjit and Siems, Mathias M., Is There a Relationship Between Shareholder Protection and Stock Market Development? (November 2017). European Corporate Governance Institute (ECGI) - Law Working Paper No. 377/2017. Available at SSRN: https://ssrn.com/abstract=3078529 or http://dx.doi.org/10.2139/ssrn.3078529

Simon F. Deakin (Contact Author)

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

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+ 44 1223 335243 (Phone)

European Corporate Governance Institute (ECGI)

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

University of Cambridge - Faculty of Law ( email )

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Cambridge, CB3 9DZ
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Prabirjit Sarkar

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
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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