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Investor Protection: Origins, Consequences, and Reform

  • Rafael La Porta
  • Florencio Lopez-deSilanes
  • Andrei Shleifer
  • Robert W. Vishny

Recent research has documented large differences between countries in ownership concentration in publicly traded firms, in the breadth and depth of capital markets, in dividend policies, and in the access of firms to external finance. We suggest that there is a common element to the explanations of these differences, namely how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the differences in laws and the effectiveness of their enforcement across countries, discuss the possible origins of these differences, summarize their consequences, and assess potential strategies of corporate governance reform. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered financial systems.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 7428.

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Date of creation: Dec 1999
Date of revision:
Publication status: published as (Published as "Investor Protection and Corporate Governance) Journal of Financial Economics (October 2000).
Handle: RePEc:nbr:nberwo:7428
Note: CF
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  1. Wendy Carlin & Colin Mayer, 1999. "Finance, Investment and Growth," OFRC Working Papers Series 1999fe09, Oxford Financial Research Centre.
  2. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
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