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Law and Structure of the Capital Markets

Author

Listed:
  • Gu, Xian

    (Institute of World Economics and Politics, Chinese Academy of Science)

  • Kowalewski, Oskar

    (Institute of Economics, Polish Academy of Science)

Abstract

In this paper, we examine whether legal systems affect the structure of capital markets in terms of the development of bond markets versus equity markets. Using a dataset of 42 developed and developing countries, we document that a country's legal system, especially investor protections, determines the structure of the capital markets in a country. Our results indicate that in countries with stronger creditor rights, the bond markets are more developed than the equity markets. Alternatively, in countries with stronger shareholder rights, the equity markets are more developed than the bond markets. Additionally, we determine that the effects of financial reforms are strongly dependent on the strength of investor protections and information disclosure.

Suggested Citation

  • Gu, Xian & Kowalewski, Oskar, 2014. "Law and Structure of the Capital Markets," Working Papers 14-20, University of Pennsylvania, Wharton School, Weiss Center.
    • Handle: RePEc:ecl:upafin:14-20
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    File URL: http://fic.wharton.upenn.edu/fic/papers/14/p1420.html
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    Cited by:

    1. Li, Jialong & Maung, Min & Wilson, Craig, 2018. "Governance and financial development: A cross-country analysis," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 52(C), pages 227-239.
    2. Nickerson, Jordan & Griffin, John M., 2017. "Debt correlations in the wake of the financial crisis: What are appropriate default correlations for structured products?," Journal of Financial Economics, Elsevier, vol. 125(3), pages 454-474.

    More about this item

    JEL classification:

    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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