Armour, John; Deakin, Simon F.; Sarkar, Prabirjit; Siems, Mathias M.; and Singh, Ajit, “Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis” (February 2008), available at http://ssrn.com/abstract=1094355
Abstract: We test the 'law matters' and 'legal origin' claims using a newly created panel dataset measuring legal change over time in a sample of developed and developing countries. Our dataset improves on previous ones by avoiding country-specific variables in favour of functional and generic descriptors, by taking into account a wider range of legal data, and by considering the effects of weighting variables in different ways, thereby ensuring greater consistency of coding. Our analysis shows that legal origin explains part of the pattern of change in the adoption of shareholder protection measures over the period from the mid-1990s to the present day: in both developed and developing countries, common law systems were more protective of shareholder interests than civil law ones. We explain this result on the basis of the head start common law systems had in adjusting to an emerging 'global' standard based mainly on Anglo-American practice. Our analysis also shows, however, that civil law origin was not much of an obstacle to convergence around this model, since civilian systems were catching up with their counterparts in the common law. We then investigate whether there was a link in this period between increased shareholder protection and stock market development, using a number of measures such as stock market capitalisation, the value of stock-trading and the number of listed firms, after controlling for legal origin, the state of economic development of particular countries, and their position on the World Bank rule of law index. We find no evidence of a long-run impact of legal change on stock market development. This finding is incompatible with the claim that legal origin affects the efficiency of legal rules and ultimately economic development. Possible explanations for our result are that laws have been overly protective of shareholders; transplanted laws have not worked as expected; and, more generally, the exogenous legal origin effect is not as strong as widely supposed.
Siems, Mathias M, “The Foundations of Securities Law” (February 1, 2008), available at http://ssrn.com/abstract=1089747
Abstract: How does the law address topics such as the sale and trade of securities and the regulation of stock exchanges and investment firms? Given the growing importance of capital markets, securities law is highly relevant, but unfortunately also quite complicated. This complexity is also reflected in its literature; reading about securities law, one may relate to Brian Cheffins' chess analogy: Since everyone is expected to be familiar with the first fifty moves, authors often just write about the end game. Therefore, there is a need to explain the first fifty moves, i.e. the very foundations of securities law. Part I of this paper describes when and how securities markets evolved. Part II discusses the relationship between market and bank financing. Parts III and IV outline which types of securities and stock exchanges exist. Part V addresses how (and to what extent) securities law has been harmonised, in particular in the European Union. Part VI concludes. Most parts of this paper are descriptive. However, it also refutes the frequent claim that only in Common Law countries securities market are important and investors well protected. The origins of securities markets are partly continental European (namely Italian and Dutch), and there are a number of common trends which concern most countries of the world. Moreover, the foundations of securities law are relatively similar across countries, as will be demonstrated in this paper.