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System and Evolution in Corporate Governance

  • Simon Deakin
  • Fabio Carvalho
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    We explore the relevance of systems theory for an understanding of legal evolution, with specific reference to the law and practice of corporate governance. The legal system can be understood as a cognitive resource which, by stabilising normative expectations, reduces transaction costs and enhances contractual cooperation. However, the cognitive capacity of the legal system is not simply a function of its adaptability to external economic conditions. Because of the need to ensure legal continuity and certainty, there is a trade-off between innovation and stabilisation in the production of legal rules. Legal change is discontinuous, asynchronic, and imperfectly matched with developments in the economy. We discuss the relevance of this model for understanding and evaluating corporate governance default rules.

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    Paper provided by ESRC Centre for Business Research in its series ESRC Centre for Business Research - Working Papers with number wp391.

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    Date of creation: Sep 2009
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    Handle: RePEc:cbr:cbrwps:wp391
    Note: PRO-2
    Contact details of provider: Web page: http://www.cbr.cam.ac.uk/

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    1. Cheffins, Brian R., 1997. "Company Law: Theory, Structure and Operation," OUP Catalogue, Oxford University Press, number 9780198764694, March.
    2. Simon Deakin & Alan Hughes, 1999. "Economic Efficiency and the Proceduralisation of Company Law," ESRC Centre for Business Research - Working Papers wp133, ESRC Centre for Business Research.
    3. 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.
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