Investor Protection and Corporate Governance

Recent research has documented large differences among countries in ownership concentration in publicly traded "rms, in the breadth and depth of capital markets, in dividend policies, and in the access of "rms to external "nance. A common element to the explanations of these di!erences is how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of firms. We describe the di!erences in laws and the e!ectiveness of their enforcement across countries, discuss the possible origins of these di!erences, 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