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Do the English Legal Origin Countries have More Dispersed Share Ownership and More Developed Financial Systems?

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  • Prabirjit Sarkar

Abstract

The essence of the legal origin hypothesis is that a country with an English legal origin provides better investor and creditor protection and experiences greater financial development; financial institutions and stock markets flourish, the general public participate more in financing investment projects of companies and so shareholding is less concentrated. The present paper examines this hypothesis on the basis of a cross-country study of 85 countries. We find no evidence of more dispersed share ownership in the English law countries than in other countries with different legal origins irrespective of whether we adjust for the existence of transitional economies and less developed countries in the sample. Using three indicators of development of banking and other credit institutions and four indicators of stock market developments, we also find no evidence of more developed financial systems in the English law countries. As expected, there is some evidence of lower financial development in the less developed countries and transitional countries. It is not the English law heritage but the security of persons and goods that appears to explain the cross-country variations in financial development.

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  • Prabirjit Sarkar, 2009. "Do the English Legal Origin Countries have More Dispersed Share Ownership and More Developed Financial Systems?," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 16(1), pages 73-86.
    • Handle: RePEc:taf:ijecbs:v:16:y:2009:i:1:p:73-86
    DOI: 10.1080/13571510802638940
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    1. John Armour & Simon Deakin & Prabirjit Sarkar & Mathias Siems & Ajit Singh, 2009. "Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(2), pages 343-380, June.
    2. Armour, J. & Deakin, S. & Mollica, V. & Siems, M.M., 2010. "Law and Financial Development: What we are learning from time-series evidence," Working Papers wp399, Centre for Business Research, University of Cambridge.

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    More about this item

    Keywords

    Law and Finance; Legal Origins; Comparative Law; Share Ownership;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P50 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - General

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