Law, Finance and Development


Background:
This interdisciplinary research project will examine the impact of legal systems on national systems of finance, and draw out the implications of legal reform for economic development. Specifically the project's aim is to carry out a constructive critique of the 'legal origins hypothesis' advanced by La Porta, Lopez-de-Silanes, Shleifer and Vishny (LLSV). This claims that systems based on the English common law are more likely than systems of civil law origin to generate, among other things, the mechanisms of shareholder protection on which liquid capital markets depend. The construction of quantitive indices of the quality of legal rules in particular countries provides the empirical basis for this finding.

While this work has been highly influential, it has yet to address some critical methodological issues. The first problem is one of casual ambiguity: LLSV's cross-sectional analyses do not take adequate account of the possibility of cumulative and interactive effects which may, over time, have influenced the relationship between law and finance. Secondly, their contrast between the common law and civil law is too sharply drawn, and fails to take into account recent work by comparative lawyers which has reassessed the role played by judges in the civil law. Thirdly, the precise mechanism of transmission from legal origin to the substantive rules of company law and corporate governance is still to be identified.

Most empirical work in this area has been cross-sectional. The reserach will complement this by constructing time series indices which will make it possible, through econometric analysis, to study the effects of legal change over time. This will be supplemented by a set of country-based case studies. Our analyses will be sensitive to the historical conditions under which financial systems in a range of countries have developed, and will take into account a greater range of factors and variables than those considered by LLSV.

Working Papers:

WEF0043
Assessing the Long-Run Economic Impact of Labour Law Systems: A Theoretical Reappraisal and Analysis of New Time Series Data
Simon Deakin and Prabirjit Sarkar

WEF0042
Legal Origin, Juridical Form and Industrialisation in Historical Perspective: The Case of the Employment Contract and the Joint-Stock Company
Simon Deakin

WEF0041
Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis
John Armour, Simon Deakin, Prabirjit Sarkar, Mathias Siems and Ajit Singh

WEF0038
Creditor Protection and Banking System Development in India
Simon Deakin, Panicos Demetriades, Gregory James
August 2008

WEF0023
Legal Origin, Shareholder Protection and the Stock Market: New Challenges from Time Series Analysis
June 2007


Journals, Seminar Papers and other publications:
Ahlering, B. and Deakin, S. (2005) ‘Labour regulation, corporate governance and legal origin: a case of institutional complementarity?’ CBR Working Paper No. 312, September 2005.

Armour, J.  and D.A. Skeel, Jr. (2007) ‘Who Writes the Rules for Hostile Takeovers, and Why?—The Peculiar Divergence of US and UK Takeover Regulation’, mimeo (83pp), forthcoming, Georgetown Law Journal, 2007.

Armour, J.  (2005) ‘Who Should Make Corporate Law? EU Legislation versus Regulatory Competition’ (2005) 58 Current Legal Problems 369-413.

Armour, J.  and D.A. Skeel, Jr. (2005) ‘An Ocean of Difference on Takeover Regulation’, in J. Grant (ed.), European Takeovers: The Art of Acquisition (London: Euromoney, 2005), 353-359.

Deakin, S. (2006) ‘Timing is everything: industrialization, legal origin and the evolution of the contract of employment in Britain and continental Europe’ paper presented to Panel 35, ‘Making markets through the law: legal claim and economic possibility’, 14th International Economic History Congress, Helsinki, 23 August 2006.

Lele, P. and Siems, M. (2007b) ‘Diversity in Shareholder Protection in Common Law Countries’, DICE Report –  Journal for Institutional Comparisons, 2007 (forthcoming).

Siems, M. (forthcoming) ‘Statistische Rechtsvergleichung’, RabelsZ.

Siems, M. (2005) ‘Numerical comparative law: do we need statistical evidence in order to reduce complexity?’ Cardozo Journal of International Law, 13: 521-540.

Siems, M. (2005) ‘Legal origins: reconciling law & finance and comparative law’ CBR WP No. 321, March 2006; forthcoming, McGill Law Journal vol. 52, 2007.

Siems, M. (2006) ‘Shareholder protection across countries - Is the EU on the right track? Dice Report’, Journal for Institutional Comparisons, 3/2006.

Singh, Ajit, Alaka Singh and Bruce Weisse (forthcoming) ‘Corporate Governance, Competition, the New International Financial Architecture and Large corporations in Emerging Markets’.  Allington, N.F.B. and J.S.L. McCombie (eds) The Cambridge Handbook of Applied Economics, Cambridge University Press.

Singh, A (forthcoming) ‘Corporate Governance, Crony Capitalism and Economic Crises:  Should the US Business Model Replace the Asian Way of ‘Doing Business’?’  forthcoming in Corporate Governance An International Review

Singh, A., and Glen, J. (2005) ‘Corporate governance, competition and finance: rethinking lessons from the Asian crisis’ Eastern Economic Journal, 31: 219-243

Singh, Ajit, Glen, J., Zammitt, A., De  Hoyos, R., Singh, Alaka, and Weiss, B. (2005) ‘Shareholder value maximisation, stock markets and new technology: should the US corporate model be the universal standard?’ CBR Working Paper No. 315, September 2005; forthcoming in International Review of Applied Economics.

Ahlering, B. and Deakin, S. (2005) 'Labour regulation, corporate governance and legal origin: a case of institutional complementarity?' CBR Working Paper No. 312, September 2005.

Lele, P. and Siems, M. (2006) 'Shareholder protection: a leximetric approach' working paper.

Siems, M. (2006) 'Legal origins: reconciling law & finance and comparative law?' forthcoming, CBR Working Paper series.

Armour, J. (2005) 'Who should make corporate law? EC legislation versus regulatory competition' CBR Working Paper No. 207, June 2005; also published in (2005) Current Legal Problems vol. 58.

Siems, M. (2005) 'Numerical comparative law: do we need statistical evidence in order to reduce complexity?' Cardozo Journal of International Law, 13: 521-540.

Singh, A., and Glen, J. (2005) 'Corporate governance, competition and finance: rethinking lessons from the Asian crisis' Eastern Economic Journal, 31: 219-243.

Singh, Ajit, Glen, J., Zammitt, A., De Hoyos, R., Singh, Alaka, and Weiss, B. (2005) 'Shareholder value maximisation, stock markets and new technology: should the US corporate model be the universal standard?' CBR Working Paper No. 315, September 2005; forthcoming in International Review of Applied Economics.


Researchers:
Professor Simon F Deakin
Professor A Singh
Mr J Armour
University of Cambridge

Contact:
Professor Simon Deakin
Centre for Business Research
Judge Institute of Management Studies Building
University of Cambridge
Trumpington Street
Cambridge
CB2 1AG

Tel: 01223 765330
email:
web:

Duration of Research:
March 2005 - February 2007