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Law, finance and development: further analyses of longitudinal data

Author

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  • Prabirjit Sarkar
  • Ajit Singh

Abstract

This paper analyses a longitudinal dataset on legal protection of shareholders over a 36 year period, 1970--2005, for four advanced countries, the UK, France, Germany and the USA. It examines two aspects of the legal origin hypothesis--whether shareholder protection is higher in the common law countries (UK and USA) than in the civil law countries (France and Germany) and whether shareholder protection matters for stock market development in the short and long runs. It also examines the 'causation' issue and the 'endogeneity' problem--whether greater shareholder protection leads to stock market development or whether stock market development leads to changes in law. The paper casts serious doubt on the validity of the basic theses of the Anglo Saxon legal and developmental model. Copyright The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved., Oxford University Press.

Suggested Citation

  • Prabirjit Sarkar & Ajit Singh, 2010. "Law, finance and development: further analyses of longitudinal data," Cambridge Journal of Economics, Oxford University Press, vol. 34(2), pages 325-346, March.
  • Handle: RePEc:oup:cambje:v:34:y:2010:i:2:p:325-346
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    File URL: http://hdl.handle.net/10.1093/cje/bep055
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    References listed on IDEAS

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    1. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    2. Simon Deakin & Ajit Singh, 2009. "The Stock Market, the Market for Corporate Control and the Theory of the Firm: Legal and Economic Perspectives and Implications for Public Policy," Chapters,in: The Modern Firm, Corporate Governance and Investment, chapter 9 Edward Elgar Publishing.
    3. Juan C. Botero & Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "The Regulation of Labor," The Quarterly Journal of Economics, Oxford University Press, vol. 119(4), pages 1339-1382.
    4. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2004. "Does Local Financial Development Matter?," The Quarterly Journal of Economics, Oxford University Press, vol. 119(3), pages 929-969.
    5. Beck, Thorsten & Demirguc-Kunt, Asli & Levine, Ross, 2003. "Law and finance: why does legal origin matter?," Journal of Comparative Economics, Elsevier, vol. 31(4), pages 653-675, December.
    6. Henry Hansmann & Reinier Kraakman, 2000. "The End Of History For Corporate Law," Yale School of Management Working Papers ysm136, Yale School of Management, revised 01 Feb 2001.
    7. Mathias Siems & Priya Lele, 2006. "Shareholder Protection: A Leximetric Approach," Working Papers wp324, Centre for Business Research, University of Cambridge.
    8. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    9. Thorsten Beck & Ross Levine, 2003. "Legal institutions and financial development," Policy Research Working Paper Series 3136, The World Bank.
    10. Marco Pagano & Paolo Volpin, 2006. "Alfred Marshall Lecture Shareholder Protection, Stock Market Development, and Politics," Journal of the European Economic Association, MIT Press, vol. 4(2-3), pages 315-341, 04-05.
    11. Sarkar, Prabirjit, 2007. "Stock Market Development and Capital Accumulation: Does Law Matter? A Case Study of India," MPRA Paper 5052, University Library of Munich, Germany.
    12. Klaus Gugler & B. Burcin Yurtoglu (ed.), 2008. "The Economics of Corporate Governance and Mergers," Books, Edward Elgar Publishing, number 13007.
    13. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    14. Sonja Fagernäs & Prabirjit Sarkar & Ajit Singh, 2008. "Legal Origin, Shareholder Protection and the Stock Market: New Challenges from Time Series Analysis," Chapters,in: The Economics of Corporate Governance and Mergers, chapter 2 Edward Elgar Publishing.
    15. S. Narayan, 2009. "India," Chapters,in: The Political Economy of Trade Reform in Emerging Markets, chapter 7 Edward Elgar Publishing.
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    Citations

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    Cited by:

    1. Olga Pogrebennyk, 2014. "Code or court: the financial-political aspect of correlation between common and civil law," European Journal of Law and Economics, Springer, vol. 37(2), pages 175-181, April.
    2. repec:eee:intfin:v:52:y:2018:i:c:p:227-239 is not listed on IDEAS
    3. Ding Chen & Simon Deakin, 2014. "On Heaven's Lathe: State, Rule of Law, & Economic Development," Working Papers wp464, Centre for Business Research, University of Cambridge.
    4. Deakin, S. & Sarkar, P. & Singh, A., 2011. "An End to Consensus? The Selective Impact of Corporate Law Reform on Financial Development," Working Papers wp423, Centre for Business Research, University of Cambridge.
    5. sarkar, prabirjit, 2011. "Common Law vs. Civil Law: Which System Provides More Protection to Shareholders and Creditors and Promotes Financial Development," MPRA Paper 32930, University Library of Munich, Germany.
    6. 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.
    7. 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.
    8. 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.
    9. John Buchanan & Dominic Heesang Chai & Simon Deakin, 2013. "Empirical Analysis of Legal Institutions and Institutional Change: Multiple-Methods Approaches and their Application to Corporate Governance Research," Working Papers wp445, Centre for Business Research, University of Cambridge.
    10. Wenwen Zhan & John Turner, 2012. "Crossing the River by Touching Stones?: The Reform of Corporate Ownership in China," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 19(3), pages 233-258, September.

    More about this item

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • K40 - Law and Economics - - Legal Procedure, the Legal System, and Illegal Behavior - - - General

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