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Is There a Relationship between Shareholder Protection and Stock Market Development?

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  • Simon Deakin
  • Prabirjit Sarkar
  • Mathias Siems

Abstract

We use recently created datasets measuring legal change over time in a sample of 28 developed and emerging economies to test whether the strengthening of shareholder rights in the course of the mid-1990s and 2000s promoted stock market development in those countries. We find only weak and equivocal evidence of a positive effect of shareholder protection on market capitalisation, the value of stock trading, and the turnover ratio, and a negative impact on the number of listed companies. There is stronger evidence of reverse causality, in the sense of stock market development at country level generating changes in shareholder protection law. We conclude, firstly, that legal reforms were at least in part an endogenous response to stock market development and not simply a reaction to the generation of global standards; but, secondly, that the laws passed in response to the demand for shareholder empowerment did not consistently have the expected impact on financial markets, and may have had some negative and perverse results.

Suggested Citation

  • Simon Deakin & Prabirjit Sarkar & Mathias Siems, 2017. "Is There a Relationship between Shareholder Protection and Stock Market Development?," Working Papers wp492, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp492
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    3. Marius Cristian Milos & Laura Raisa Milos, 2019. "Investor protection and stock market development. Empirical approach on the European Union case," Juridical Tribune (Tribuna Juridica), Bucharest Academy of Economic Studies, Law Department, vol. 9(1), pages 113-125, March.

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    More about this item

    Keywords

    corporate governance; shareholder protection; financial development; stock market development;
    All these keywords.

    JEL classification:

    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • K22 - Law and Economics - - Regulation and Business Law - - - Business and Securities Law
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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