Shareholder Protection in the USA and Germany - on the Fallacy of Llsv

Abstract

In this article we introduce the law matters thesis of LaPorta et al. and highlight its importance in economic as well as legal literature. The results of their Law and Finance article highlight the much better shareholder protection of Common Law compared to Civil Law countries. We reconsider their antidirector rights index for Germany and the United States, two typical representatives of their respective legal family. By having a close look at the legal provisions of the two countries we illustrate the weaknesses and pitfalls of the index. We find that Germany would score much better if one bothers analyzing the Law. Moreover, we point out inconsistencies in the judgment of the USA. Therefore we conclude that the difference between Common and Civil Law in terms of shareholder protection is far less significant than LaPorta et al. propose, if at all. The blindfold citation of this article can implicate wrong political-economic measures and should therefore be avoided.

Keywords: Common Law, Civil Law, Shareholder Protection, Germany, USA, LLSV, Law and Finance, Corporate Governance

JEL Classification: K22, G34, K40