COMMON LAW VS. CIVIL LAW: WHICH SYSTEM PROVIDES MORE PROTECTION TO SHAREHOLDERS AND PROMOTES FINANCIAL DEVELOPMENT
Abstract
This study re–examines the theory of legal–origin on the basis of a new longitudinal dataset for four OECD countries (UK, USA, France and Germany) over a long time span 1970–2005. It observes that the civil law countries (France and Germany) provided better minority shareholder protection. Through dynamic panel data modelling our study shows that minority shareholder protection has a long–term favourable effect only on stock market listing of firms. Thus, our study questions the proposition that common–law countries provide more protection to their shareholders; it also casts doubt on the related proposition that shareholder protection promotes stock market development.
References
[2] Armour, J., and Skeel, D.A.Jr. 2007. Who writes the rules for hostile takeovers, and why? The peculiar divergence of US and UK takeover regulation.’ Georgetown Law Journal 95: 1727–94.
[3] Armour, J., Deakin, S., Sarkar, P., Siems, M., and Singh, A. 2009. Shareholder protection and stock market development: an empirical test of the legal origins hypothesis. Journal of Empirical Legal Studies 6 (2009a): 343–380.
[4] Armour, J., Deakin, S., Lele, P., and Siems, M. 2009. How do legal rules evolve? Evidence from a cross–national comparison of shareholder, creditor and worker protection. American Journal of Comparative Law 57(2009b): 579–629.
[5] Beck, T., Demirgüç–Kunt, A., and Levine, R. 2000. A new database on financial development and structure. World Bank Economic Review, 14 (2000a), 597–605.
[6] Beck, T., Levine, R., and Loayza, N. 2000. Finance and the source of growth. Journal of Financial Economic 58 (2000b): 261–300.
[7] Beck, T., Demirgüc–Kunt, A., and Levine, R. 2003. Law and finance: why does legal origin matter? Journal of Comparative Economics 31(2003a): 653–675.
[8] Beck T., Demirgüc–Kunt, A., and Levine, R. 2003. Law, endowments and finance. Journal of Financial Economics 70(2003b): 137–181.
[9] Blackburne, III, E.F., and Frank, M.W. 2007. Estimation of non–stationary heterogeneous panels. The Stata Journal 7: 197–208.
[10] Deakin, S., and Singh, A. 2008. The stock market, the market for corporate control and the theory of the firm: legal and economic perspectives and implications for public policy.’ CBR (University of Cambridge Working Paper) 365.
[11] Botero, J., Djankov, S., La Porta, R., Lopez–de–Silanes, F., and Shleifer, A. 2004. The regulation of labour. Quarterly Journal of Economics 119: 1339–1382.
[12] Claessens, S., and Laeven, L. 2003. Financial development, property rights and growth. Journal of Finance 58: 2401–2436.
[13] Cheffins, B.R. 2001. Does law matter? The separation of ownership and control in the United Kingdom. Journal of Legal Studies 30: 459–84.
[14] Coffee, J. 2001. The rise of dispersed ownership: the role of law in the separation of ownership and control. Yale Law Journal 111: 1–82.
[15] Cools, S. 2005. The real difference in corporate law between the United States and continental Europe: distribution of powers. Delaware Journal of Corporate Law 30: 697–766.
[16] Djankov, S., Glaeser, E., La Porta, R., Lopez–de–Silanes, F., and Shleifer, A. 2003. The new comparative economics. Journal of Comparative Economics 31: 595–619.
[17] Djankov, S., La Porta, R., Lopez–de–Silanes, F., and Shleifer, A. 2008. The law and economics of self–dealing. Journal of Financial Economics 88: 430–65.
[18] Glaeser, E., and Shleifer, A. 2002. Legal origins. Quarterly Journal of Economics 117: 1193–1229.
[19] Glaeser, E., and Shleifer, A. 2003. The rise of the regulatory state. Journal of Economic Literature 41: 401–425.
[20] Hall, P.A., and Soskice, D. 2001. Varieties of Capitalism: The Institutional Foundations of Comparative Advantage. Oxford and New York: Oxford University Press.
[21] Hayek, F. 1960. The Constitution of Liberty. London: Routledge and Kegan Paul.
[22] King, R.G., and Levine, R. 1993. Finance and growth: Schumpeter must be right. Quarterly Journal of Economics 108: 717–737.
[23] La Porta, R., Lopez–de–Silanes, F., Shleifer, A., and Vishny, R. 1997. Legal determinants of external finance. Journal of Finance 52: 1131–1150.
[24] La Porta, R., Lopez–de–Silanes, F., Shleifer, A., and Vishny, R. 1998. Law and finance. Journal of Political Economy 106: 1113–55.
[25] La Porta, R., Lopez–de–Silanes, F., and Shleifer, A. 1999. Corporate ownership around the world. Journal of Finance 54: 471–517.
[26] La Porta, R., Lopez–de–Silanes, F., Shleifer, A., and Vishny, R. 2000. Agency problems and dividend policies around the world. Journal of Finance 55: 1–33.
[27] La Porta, R., Lopez–de–Silanes, F., and Shleifer, A. 2006. What works in securities laws? Journal of Finance 61: 1–32.
[28] La Porta, R., Lopez–de–Silanes, F., and Shleifer, A. 2008. The economic consequences of legal origins. Journal Economic Literature 46: 285–332.
[29] Levine, R. 2003. Stock markets liquidity and economic growth: theory and evidence. In Finance, Research, Education and Growth, edited by Luigi Paganetto and Edmond S. Phelps, Palgrave Macmillan, New York.
[30] Levine, R. 2001. International financial liberalisation and economic growth. Review of International Economics 9: 688–702.
[31] Levine, R. 1997. Financial development and economic growth: views and agenda. Journal of Economic Literature 35: 688:726.
[32] Levine, R., Loayza, N., and Beck., T. 2000. Financial intermediation and growth: causality and causes. Journal of Monetary Economics 46: 31–77.
[33] Levine, R., and Zervos, S. 1998 .Stock markets, banks, and economic growth. American Economic Review 88: 537–558.
[34] Mahoney, P.G. 2001. The common law and economic growth: Hayek might be right. Journal of Legal Studies 30: 503–525.
[35] Milhaupt, C.J., and Pistor, K. 2008. Law & Capitalism: What Corporate Crises Reveal about Legal Systems and Economic Development around the World. Chicago and London: University of Chicago Press.
[36] North, D. 1990. Institutions, Institutional Change, and Economic Performance. Cambridge: Cambridge University Press.
[37] Rajan, R., and Zingales, L. 2003. The great reversals: the politics of financial development in the twentieth century. Journal of Financial Economics 69: 5–50.
[38] Pesaran, M.H., Shin, Y., and Smith, R.P. 1995. Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American Statistical Association 94: 621–634.
[39] Pesaran, M.H., and Smith, R.P. 1995. Estimating long–run relationships from dynamic heterogeneous panels. Journal of Econometrics 68: 79–113.
[40] Sarkar, P., and Singh, A. 2010. Law, finance and development: further analyses of longitudinal data. Cambridge Journal of Economics 34: 325–346.
[41] Sarkar, P. 2009. Corporate Governance, Stock Market Development and Private Capital Accumulation: A Case Study of India. In India Macroeconomics Annual 2008 edited by S. Marjit. Kolkata, Sage India.
[42] Siems, M. 2007. Reconciling law & finance and comparative law. McGill Law Journal 52: 55–81.
[43] Spamann, H. 2006. On the insignificance and/or endogeneity of La Porta et al.’s ‘anti–director rights index’under consistent coding’, Harvard John M. Olin Center for Law, Economics, and Business Fellows’ Discussion Paper 7.
[44] Spamann, H. 2008. Law and finance’ revisited, Harvard John M. Olin Center for Law, Economics, and Business Fellows’ Discussion Paper 12.
[45] Toda, H.Y. and Yamamoto, T. 1995. Statistical inference in vector autoregressions with possibly integrated processes.’ Journal of Econometrics, 66: 225–250.
[46] Zweigert, K., and Kötz, H. 1998. Introduction to Comparative Law 3rd. ed. trans. T. Weir (Oxford: OUP).
The Copyright Transfer Form to ASERS Publishing (The Publisher)
This form refers to the manuscript, which an author(s) was accepted for publication and was signed by all the authors.
The undersigned Author(s) of the above-mentioned Paper here transfer any and all copyright-rights in and to The Paper to The Publisher. The Author(s) warrants that The Paper is based on their original work and that the undersigned has the power and authority to make and execute this assignment. It is the author's responsibility to obtain written permission to quote material that has been previously published in any form. The Publisher recognizes the retained rights noted below and grants to the above authors and employers for whom the work performed royalty-free permission to reuse their materials below. Authors may reuse all or portions of the above Paper in other works, excepting the publication of the paper in the same form. Authors may reproduce or authorize others to reproduce the above Paper for the Author's personal use or for internal company use, provided that the source and The Publisher copyright notice are mentioned, that the copies are not used in any way that implies The Publisher endorsement of a product or service of an employer, and that the copies are not offered for sale as such. Authors are permitted to grant third party requests for reprinting, republishing or other types of reuse. The Authors may make limited distribution of all or portions of the above Paper prior to publication if they inform The Publisher of the nature and extent of such limited distribution prior there to. Authors retain all proprietary rights in any process, procedure, or article of manufacture described in The Paper. This agreement becomes null and void if and only if the above paper is not accepted and published by The Publisher, or is with drawn by the author(s) before acceptance by the Publisher.