Munich Personal RePEc Archive

An end to consensus? the selective impact of corporate law reform on financial development

Deakin, Simon and Sarkar, Prabirjit and Singh, Ajit (2011): An end to consensus? the selective impact of corporate law reform on financial development. Published in: Centre for Business Research Working Paper Series No. WP423 (June 2011)

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Abstract

Legal origins theory suggests that law reform,strengthening shareholder and creditor rights, should enhance 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.

JEL Codes: G33, G34, K22, O16.

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