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Cambridge Journal of Economics Advance Access published online on September 26, 2009
Cambridge Journal of Economics, doi:10.1093/cje/bep055
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© The Author 2009. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.

Law, finance and development: further analyses of longitudinal data

Prabirjit Sarkar and Ajit Singh*

* Jadavpur University, Kolkata, India and CBR, Cambridge University, UK (PS) and University of Cambridge and Birmingham University (AS)

Address for correspondence: Prabirjit Sarkar, Centre for Business Research, University of Cambridge, CB2 1AG, UK; email: prabirjitsarkar{at}gmail.com

This paper analyses a longitudinal dataset on legal protection of shareholders over a 36 year period, 1970–2005, for four advanced countries, the UK, France, Germany and the USA. It examines two aspects of the legal origin hypothesis—whether shareholder protection is higher in the common law countries (UK and USA) than in the civil law countries (France and Germany) and whether shareholder protection matters for stock market development in the short and long runs. It also examines the ‘causation’ issue and the ‘endogeneity’ problem—whether greater shareholder protection leads to stock market development or whether stock market development leads to changes in law. The paper casts serious doubt on the validity of the basic theses of the Anglo Saxon legal and developmental model.

Key Words: Shareholder protection • Corporate governance • Stock market development • Law and finance

JEL classifications: G30, G38, K22, K40

Manuscript received February 5, 2009; final version received February 5, 2009.


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