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Law and Financial Development: What we are learning from time-series evidence

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Author Info

  • Armour, J.
  • Deakin, S.
  • Mollica, V.
  • Siems, M.M.

Abstract

The legal origins hypothesis is one of the most important and influential ideas to emerge in the social sciences in the past decade. However, the empirical base of the legal origins claim has always been contestable, as it largely consists of cross-sectional datasets which provide evidence on the state of the law only at limited points in time. There is now a growing body of data derived from techniques for coding cross-national legal variation over time. This time-series evidence is reviewed here and is shown to cast new light on some of the central claims of legal origins theory. Legal origins are shown to be of little help in explaining trends in the law relating to shareholder protection, although the classification of legal systems into English-, French- and German-origin ‘families’ has greater explanatory force in the context of creditor rights. The widely-held view that increases in shareholder rights foster financial development is not supported by time-series analyses. More generally, the new evidence casts doubt on the suggestion that legal origins operate as an ‘exogenous’ force, independently shaping both the content of laws and economic outcomes. It is more plausible to see legal systems as evolving in parallel with changes in economic conditions and political structures at national level.

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File URL: http://www.cbr.cam.ac.uk/pdf/WP399.pdf
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Bibliographic Info

Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp399.

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Date of creation: Mar 2010
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Handle: RePEc:cbr:cbrwps:wp399

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Web page: http://www.cbr.cam.ac.uk/

Related research

Keywords: legal origins; law and finance; comparative law; shareholder protection; creditor protection; time series analysis.;

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References

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Citations

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Cited by:
  1. Deakin, Simon & Sarkar, Prabirjit & Singh, Ajit, 2011. "An end to consensus? the selective impact of corporate law reform on financial development," MPRA Paper 39047, University Library of Munich, Germany.
  2. Harilaos Mertzanis, 2011. "The effectiveness of corporate governance policy in Greece," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 19(3), pages 222-243, July.
  3. Deakin, Simon & Sarkar, Prabirjit & Singh, Ajit, 2010. "An End to Consensus? The (Non) Impact of Legal Reforms on Financial Development," MPRA Paper 53352, University Library of Munich, Germany.
  4. Carsten Gerner-Beuerle, 2014. "Determinants of corporate governance codes," LSE Research Online Documents on Economics 55828, London School of Economics and Political Science, LSE Library.
  5. Themistokles Lazarides, 2011. "Corporate governance legal and regulatory framework's effectiveness in Greece: A response," Journal of Financial Regulation and Compliance, Emerald Group Publishing, vol. 19(3), pages 244-253, July.

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