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Law and Finance: Common Law and Civil Law Countries Compared—An Empirical Critique

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  • MICHAEL GRAFF

Abstract

The ‘theory of law and finance’ argues that the common law system provides a better framework for financial development and economic growth than the civil law tradition. This paper identifies a number of problems that cast doubt on the soundness of the empirical basis of this literature. However, this analysis supports the idea that the legal tradition is a major factor in shaping corporate law. In particular, while there is not much evidence that common law countries protect financial investors better than civil law countries I find support for the assumption that financial investors are treated differently across legal families.

Suggested Citation

  • Michael Graff, 2008. "Law and Finance: Common Law and Civil Law Countries Compared—An Empirical Critique," Economica, London School of Economics and Political Science, vol. 75(297), pages 60-83, February.
    • Handle: RePEc:bla:econom:v:75:y:2008:i:297:p:60-83
    DOI: 10.1111/j.1468-0335.2007.00596.x
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    References listed on IDEAS

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    1. von Thadden, Ernst-Ludwig & Perotti, Enrico, 2003. "The Political Economy of Bank and Equity Dominance," CEPR Discussion Papers 3914, Centre for Economic Policy Research.
    2. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    3. Mr. Giovanni Favara, 2003. "An Empirical Reassessment of the Relationship Between Finance and Growth," IMF Working Papers 2003/123, International Monetary Fund.
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