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Law and Finance in Transition Economies

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  • Katharina Pistor
  • Martin Raiser
  • Stanislaw Gelfer
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    Abstract

    This paper offers the first comprehensive analysis of legal change in the protection of shareholder and creditor rights in transition economies and its impact on the propensity of firms to raise external finance. Following La Porta et al. (1998), the paper constructs an expanded set of legal indices to capture a range of potential conflicts between different stakeholders of the firm. It supplements the analysis of the law on the books with an analysis of the effectiveness of legal institutions. Our main finding is that the effectiveness of legal institutions has a much stronger impact on external finance than does the law on the books, despite legal change that has substantially improved shareholder and creditor rights. This finding supports the proposition that legal transplants and extensive legal reforms are not sufficient for the evolution of effective legal and market institutions.

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    File URL: http://www.cid.harvard.edu/cidwp/pdf/049.pdf
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    Bibliographic Info

    Paper provided by Center for International Development at Harvard University in its series CID Working Papers with number 49.

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    Date of creation: Jun 2000
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    Handle: RePEc:wop:cidhav:49

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    Postal: Center for International Development at Harvard University (CID). 79 John F. Kennedy Street, Cambridge, MA 02138.
    Fax: 617-496-2554
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    Web page: http://www.cid.harvard.edu/cidwp/
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    Keywords: shareholder and creditor rights; legal effectiveness; external finance; transition;

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    References

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    1. Colin Mayer & Wendy Carlin, 1999. "Finance, Investment and Growth," Economics Series Working Papers 1999-FE-09, University of Oxford, Department of Economics.
    2. Kornai, Janos, 1992. "The Socialist System: The Political Economy of Communism," OUP Catalogue, Oxford University Press, number 9780198287766.
    3. La Porta, Rafael & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. " Legal Determinants of External Finance," Journal of Finance, American Finance Association, vol. 52(3), pages 1131-50, July.
    4. Mauro, Paolo, 1995. "Corruption and Growth," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 681-712, August.
    5. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
    6. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 596-613, August.
    7. Daniel Berkowitz & Katharina Pistor & Jean-Francois Richard, 2000. "Economic Development, Legality, and the Transplant Effect," CID Working Papers 39, Center for International Development at Harvard University.
    8. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
    9. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, 04.
    10. D Willer, 1997. "Corporate Governance and Shareholder Rights in Russia," CEP Discussion Papers dp0343, Centre for Economic Performance, LSE.
    11. Katharina Pistor, 2000. "Patterns of legal change: shareholder and creditor rights in transition economies," Working Papers 49, European Bank for Reconstruction and Development, Office of the Chief Economist.
    12. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," Harvard Institute of Economic Research Working Papers 1768, Harvard - Institute of Economic Research.
      • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
      • La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert W., 1998. "Law and Finance," Scholarly Articles 3451310, Harvard University Department of Economics.
      • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
    13. Stephen Knack & Philip Keefer, 1995. "Institutions And Economic Performance: Cross-Country Tests Using Alternative Institutional Measures," Economics and Politics, Wiley Blackwell, vol. 7(3), pages 207-227, November.
    14. Erik BERGLÖF & Ernst-Ludwig VON THADDEN, 1999. "The Changing Corporate Governance Paradigm : Implications for Transition and Developing Countries," Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) 9912, Université de Lausanne, Faculté des HEC, DEEP.
    15. Asli Demirgüç-Kunt & Vojislav Maksimovic, 1998. "Law, Finance, and Firm Growth," Journal of Finance, American Finance Association, vol. 53(6), pages 2107-2137, December.
    16. D. Willer, 1997. "Corporate governance and shareholder rights in Russia," LSE Research Online Documents on Economics 20345, London School of Economics and Political Science, LSE Library.
    17. Calvo, Guillermo A & Coricelli, Fabrizio, 1992. "Stagflationary Effects of Stabilization Programs in Reforming Socialist Countries: Enterprise-Side and Household-Side Factors," World Bank Economic Review, World Bank Group, vol. 6(1), pages 71-90, January.
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