This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common law countries generally have the best, and French civil law countries the worst, legal protections of investors, with German and Scandinavian civil law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

Law and Finance

This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common-law countries generally have the strongest, and Frenchcivil-law countries the weakest, legal protections of investors, with German- and Scandinavian-civil-law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negatively related to investor protections, consistent with the hypothesis that small, diversified shareholders are unlikely to be important in countries that fail to protect their rights.

This paper surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world.

A Survey of Corporate Governance

This article surveys research on corporate governance, with special attention to the importance of legal protection of investors and of ownership concentration in corporate governance systems around the world. CORPORATE GOVERNANCE DEALS WITH the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment. How do the suppliers of finance get managers to return some of the profits to them? How do they make sure that managers do not steal the capital they supply or invest it in bad projects? How do suppliers of finance control managers? At first glance, it is not entirely obvious why the suppliers of capital get anything back. After all, they part with their money, and have little to contribute to the enterprise afterward. The professional managers or entrepreneurs who run the firms might as well abscond with the money. Although they sometimes do, usually they do not. Most advanced market economies have solved the problem of corporate governance at least reasonably well, in that they have assured the flows of enormous amounts of capital to firms, and actual repatriation of profits to the providers of finance. But this does not imply that they have solved the corporate governance problem perfectly, or that the corporate governance mechanisms cannot be improved. In fact, the subject of corporate governance is of enormous practical impor

/pdf/a-survey-of-corporate-governance-36f3yobhy4.pdf

This paper documents that strategies which buy stocks that have performed well in the past and sell stocks that have performed poorly in the past generate significant positive returns over 3- to 12-month holding periods. We find that the profitability of these strategies are not due to their systematic risk or to delayed stock price reactions to common factors. However, part of the abnormal returns generated in the first year after portfolio formation dissipates in the following two years. A similar pattern of returns around the earnings announcements of past winners and losers is also documented

/pdf/returns-to-buying-winners-and-selling-losers-implications-47r2et8t86.pdf

Returns to Buying Winners and Selling Losers: Implications for Stock Market Efficiency

dural formalism every year since 1950 We find that large differences in procedural formalism between common and civil law countries existed in 1950 and widened by 2000 For this area of law, the find ings are inconsistent with the hypothesis that national legal systems are converging, and support the view that legal origins exert long lasting influence on legal rules (JEL K41, 017) oth the standard historical narrative and recent empirical research show that national legal systems vary systematically according to the legal traditions or origins that countries belong to In particular, both substantive and procedural legal rules and regulations of civil (or Roman) law countries differ systematically from those of common (or English) law countries (Konrad Zweigert and Hein Kotz 1998; La Porta, Lopez-de-Silanes, and Shleifer 2008) The observed variation raises a number of questions Are these observed differences in laws and regulations merely a figment of recent data, or have they been present historically as well? Are legal rules coming from different legal traditions converging? Answers to these questions are central to the interpretation of legal origins, since some degree of permanence of their influence is central to the accounts of why they matter today In addition, we wish to know which factors economic, political, or even internal to the legal system itself determine the nature and the pace of legal change In this paper, we examine the design of the legal process for civil litigation in 40 countries between 1950 and 2000 We focus on civil procedure, defined as the "body of law concerned with methods, procedures and practices used in civil liti

/pdf/the-divergence-of-legal-procedures-2erzzj4i12.pdf

The Divergence of Legal Procedures

The economies of Eastern Europe and the former Soviet Union (FSU) escaped communism with a heavy burden. Despite the collapse of central planning, these economies continued to suffer from heavy political control of economic activity, reflected in massive subsidization of state firms, heavy regulation of entry and operations of private firms, as well as punitive taxation by the government and - separately - by its agents (corruption). Such politicization of the economy had to be reduced significantly for small business formation and growth to begin. In recent years, some countries have succeeded in depoliticizing their economies much better than others. As this paper shows, these are the countries that also had the best growth records.

Politics and Entrepreneurship in Transition Economies

A central question for understanding behaviour during the Covid-19 pandemic, at both the individual and collective levels, is how people perceive the health and economic risks they face. We conducted a survey of over 1,500 Americans from May 6 – 13, 2020, to understand these risk perceptions. Here we report some preliminary results. Our most striking finding is that perceived personal health risks associated with Covid-19 fall sharply with age.

/pdf/older-people-are-less-pessimistic-about-the-health-risks-of-513nwwir1t.pdf

Older People are Less Pessimistic about the Health Risks of Covid-19

The Coase theorem implies that, in a world of positive transaction costs, any of a number of strategies, including judicially enforced private contracts, judicially enforced laws, or even government regulation, may be the cheapest way to bring about efficient resource allocation. Unfortunately, some Coasians have ignored the possibility that the last of these strategies may sometimes be the best. This paper compares the regulation of financial markets in Poland and the Czech Republic in the 1990s, when the judicial systems remained underdeveloped in both countries. In Poland, strict enforcement of the securities law by an independent Securities and Exchange Commission was associated with rapid development of the stock market. In the Czech Republic, hands-off regulation was associated with a near collapse of the stock market. These episodes illustrate the centrality of law enforcement in making markets work, and the possible role of regulators in law enforcement.

Coase v. the Coasians

Djankov et al. (2003a) propose and measure for 109 countries in the year 2000 an index of formalism of legal procedure for two simple disputes: eviction of a non-paying tenant and collection of a bounced check. For a sub-sample of 40 countries, we compute this index every year starting in 1950, which allows us to study the evolution of legal rules. We find that between 1950 and 2000, the formalism of legal procedure did not converge, and possibly diverged, between common law and French civil law countries. At least in this specific area of law, the results are inconsistent with the hypothesis that national legal systems are converging, and support the view that legal origins exert long lasting influence on legal rules.

Andrei Shleifer

Papers

The Divergence of Legal Procedures

Politics and Entrepreneurship in Transition Economies

Older People are Less Pessimistic about the Health Risks of Covid-19

Coase v. the Coasians

The Divergence of Legal Procedures