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The failings of legal centralism for helping stock markets in transition

  • Edward Stringham
  • Peter Boettke

After Czech voucher privatization many companies simply ignored the interests of their shareholders. The government has since increased the amount of regulation, but they have failed to establish significant investor confidence. This article offers some explanations of why their legal centric approach remains unlikely to create good corporate governance. Mandating that companies maximize shareholder value is easier said than done because it requires government to assess whether companies are making optimal business decisions. In former communist countries especially, government officials are ill suited to make such judgments because they lack the knowledge of how businesses should be properly run. Increased bureaucratic oversight in the Czech Republic has simply burdened markets without any noticeable positive results. This article discusses how good corporate governance can only be a byproduct of markets where managers compete for investors rather than something that can be created by law.

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Article provided by University of Economics, Prague in its journal Politická ekonomie.

Volume (Year): 2006 (2006)
Issue (Month): 1 ()
Pages: 22-34

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Handle: RePEc:prg:jnlpol:v:2006:y:2006:i:1:id:543:p:22-34
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  1. Bernstein, Lisa, 1992. "Opting Out of the Legal System: Extralegal Contractual Relations in the Diamond Industry," The Journal of Legal Studies, University of Chicago Press, vol. 21(1), pages 115-57, January.
  2. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  3. Williamson, Oliver E, 1983. "Credible Commitments: Using Hostages to Support Exchange," American Economic Review, American Economic Association, vol. 73(4), pages 519-40, September.
  4. Stringham, Edward, 2003. "The extralegal development of securities trading in seventeenth-century Amsterdam," The Quarterly Review of Economics and Finance, Elsevier, vol. 43(2), pages 321-344.
  5. repec:cup:cbooks:9780521070904 is not listed on IDEAS
  6. Frank H. Easterbrook, 1997. "International Corporate Differences: Markets Or Law?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 9(4), pages 23-30.
  7. Klein, Peter G, 1996. " Economic Calculation and the Limits of Organization," The Review of Austrian Economics, Springer, vol. 9(2), pages 3-28.
  8. Peter T. Leeson, 2006. "Self-Enforcing Arrangements and Heterogeneous Groups," American Journal of Economics and Sociology, Wiley Blackwell, vol. 65(4), pages 891-907, October.
  9. Clay, Karen, 1997. "Trade without Law: Private-Order Institutions in Mexican California," Journal of Law, Economics and Organization, Oxford University Press, vol. 13(1), pages 202-31, April.
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