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

42 Pages Posted: 19 Jan 2018

See all articles by Simon Deakin

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 Siems

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

Multiple version iconThere are 2 versions of this paper

Date Written: September 2017

Abstract

We use recently created datasets measuring legal change over time in a sample of 28 developed and emerging economies to test whether the strengthening of shareholder rights in the course of the mid-1990s and 2000s promoted stock market development in those countries. We find 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 F. and Sarkar, Prabirjit and Siems, Mathias, Is There a Relationship between Shareholder Protection and Stock Market Development? (September 2017). University of Cambridge Faculty of Law Research Paper No. 9/2018, Available at SSRN: https://ssrn.com/abstract=3105234 or http://dx.doi.org/10.2139/ssrn.3105234

Simon F. Deakin (Contact Author)

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

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Cambridge, CB2 1AG
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+ 44 1223 335243 (Phone)

European Corporate Governance Institute (ECGI)

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Belgium

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 )

Centre for Business Research
Cambridge, CB2 1AG
United Kingdom

Mathias Siems

European University Institute (EUI) ( email )

Via Bolognese 156 (Villa Salviati)
Firenze, 50139
Italy

HOME PAGE: http://www.eui.eu/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/

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://ecgi.global/users/mathias-siems

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