Law of Incorporation and Ownership Structure: The Law and Finance Theory Revisited

37 Pages Posted: 30 Aug 2006 Last revised: 13 Jul 2008

See all articles by Yves Bozec

Yves Bozec

HEC Montreal

Stephane Rousseau

Université de Montréal - Faculty of Law

Claude Laurin

HEC Montreal - Department of Accounting Studies

Date Written: August 18, 2006

Abstract

The theory of law and finance proposed by La Porta et al. (1998) predicts that minority controlled ownership structures, i.e. the structures that allow voting rights to exceed cash-flow rights, are more frequent in legal contexts where investors are not well protected against the expropriation attempts orchestrated by controlling shareholders. The purpose of our study is to test this prediction in a unique environment, that of the province of Quebec. Quebec's distinct status hinges on the fact that it is a Civil Law jurisdiction in a country, Canada, which is made up of nine other provinces with a Common Law tradition. Overall, the results support the theory. Quebec's Civil Law tradition appears to lead to a greater concentration of voting rights and a wider separation between voting rights and ownership rights.

Keywords: Ownership structure, law and finance, private benefits of control

JEL Classification: G32, G34

Suggested Citation

Bozec, Yves and Rousseau, Stephane and Laurin, Claude, Law of Incorporation and Ownership Structure: The Law and Finance Theory Revisited (August 18, 2006). International Review of Law and Economics, Vol. 28, No. 2, 2008, Available at SSRN: https://ssrn.com/abstract=927420 or http://dx.doi.org/10.2139/ssrn.927420

Yves Bozec

HEC Montreal ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Stephane Rousseau (Contact Author)

Université de Montréal - Faculty of Law ( email )

C.P. 6128 succ. centre-ville
Montreal, Quebec H3C 3J7
Canada

HOME PAGE: http://www.droitdesaffaires.ca

Claude Laurin

HEC Montreal - Department of Accounting Studies ( email )

3000, Chemin de la Côte-Sainte-Catherine
Montreal H3T 2A7, Quebec
Canada
514-340-6536 (Phone)
514-340-5633 (Fax)

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