Skip to main content
SpringerLink
Log in

The Challenges of Quantifying Investor Protection in a Comparative Context

  • Articles
  • Published:
European Business Organization Law Review Aims and scope Submit manuscript

Abstract

La Porta et al. have made a number of influential empirical contributions linking the level of investor protection in different countries to the development of capital markets. They find that rules associated with common law are superior in fostering larger and broader capital markets, especially compared to countries based on the French civil law tradition. However, this article argues that the existing methodological approach is problematic when subjected to careful legal analysis based mostly on Scandinavian examples. In particular, one may question the appropriateness of relying on legal indices, as laws by their very nature cannot be stacked like bricks of similar size. Furthermore, it is argued that the notion of investor protection needs to be considered in a consistent, complete and unbiased manner, in which the binary categorisation should be modified. Specifically, due to the ambiguity of formal investor protection rights, it is suggested that the ratio of actual minority votes cast at the general meeting to the total number of minority shares may serve as an alternative proxy for the real degree of investor protection.

This is a preview of subscription content, log in via an institution to check access.

Access this article

Log in via an institution

Price excludes VAT (USA)
Tax calculation will be finalised during checkout.

Instant access to the full article PDF.

Institutional subscriptions

Similar content being viewed by others

References

  • Bainbridge, Stephen M. 2002. Corporation Law and Economics. New York: Foundation Press.

    Google Scholar 

  • Beck, Thorsten and Ross Levine. 2002. ‘Industry Growth and Capital Allocation: Does Having a Market- or Bank-Based System Matter?’. Journal of Financial Economics 64: 147–180.

    Article  Google Scholar 

  • Braendle, Udo C. 2005. Shareholder Protection in the USA and Germany — On the fallacy of the LLSV. University of Manchester School of Law.

  • Cools, Sofie. 2004. The Real Difference in Corporate Law between the United States and Continental Europe: Distribution of Powers. Discussion Paper No. 490. Harvard: John M. Olin Center for Law and Economics and Business.

    Google Scholar 

  • Cooter, Robert and Thomas Ulen. 2000. Law and Economics. 3rd edn. Reading, MA: Addison-Wesley.

    Google Scholar 

  • Cross, Frank B. 2004. Identifying the Virtues of the Common Law. Working paper. University of Texas Law School.

  • Davies, Paul L. 2003. Gower and Davies’ Principles of Modern Company Law. London: Thomson, Sweet & Maxwell.

    Google Scholar 

  • Demirgüc-Kunt, Asli and Vojislav Maksimovic. 1998. ‘Law, Finance and Firm Growth’. Journal of Finance 53: 2107–2137.

    Article  Google Scholar 

  • Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes and Andrei Shleifer. 2005. ‘The Law and Economics of Self-Dealing’. Seminar in law and economics. Harvard, November 15.

  • Easterbrook, Frank H. and Daniel R. Fischel. 1983. ‘Shareholder Voting Rights and the Exercise of Voice’. Journal of Law and Economics 26: 395.

    Article  Google Scholar 

  • Easterbrook, Frank H. and Daniel R. Fischel. 1991. The Economic Structure of Corporate Law. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Fama, Eugene. 1980. ‘Agency Problems and the Theory of the Firm’. Journal of Political Economy 88(2).

  • Franks, Julian, Colin Mayer and Hannes F. Wagner. 2005. The Origins of the German Corporation — Finance, Ownership and Control. Working Paper, March 1.

  • Glaeser, Edward L. and Andrei Shleifer. 2002. ‘Legal Origin’. Quarterly Journal of Economics 1193–1229.

  • Grossman, S. and Oliver Hart. 1980. ‘Takeover Bids, the Free Rider Problem and the Theory of the Corporation’. Bell Journal of Economics 11: 42–64.

    Article  Google Scholar 

  • Hermalin, Benjamin and Michael S. Weisbach. 1991. ‘The Effects of Board Composition and Directive Incentives on Firm Performance’. Financial Management 20: 101–112.

    Article  Google Scholar 

  • Jensen, Michael. 1986. ‘Agency Costs and the Free Cash Flow, Corporate Finance and Takeovers’. American Economic Review 76: 323–329.

    Google Scholar 

  • Jensen, Michael and William H. Meckling. 1976. ‘Theory of the Firm: Managerial Behaviour, Agency Costs and Ownership Structure’. Journal of Financial Economics 3: 305.

    Article  Google Scholar 

  • Johnson, Jack and John Dinardo. 1997. Econometric Methods. 4th edn. New York: McGraw-Hill.

    Google Scholar 

  • Johnson, Simon, Peter Boone, Alasdair Breach and Eric Friedman. 2000. ‘Corporate Governance in the Asian Financial Crisis’. Journal of Financial Economics 58: 141–186.

    Article  Google Scholar 

  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny. 1997. ‘Legal Determinants of External Finance’. Journal of Finance 52: 1131–1150.

    Article  Google Scholar 

  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny. 1998. ‘Law and Finance’. Journal of Political Economy 61: 1113–1155.

    Article  Google Scholar 

  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny. 1999. ‘The Quality of Government’. Journal of Law, Economics and Organization 51: 222–278.

    Article  Google Scholar 

  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny. 2000. ‘Agency Problems and Dividend Policies around The World’. Journal of Finance LV: 1–29.

    Article  Google Scholar 

  • - 2000. ‘Investor Protection and Corporate Governance’. Journal of Financial Economics 3.

  • La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer and Robert W. Vishny. 2002. ‘Investor Protection and Corporate Valuation’. Journal of Finance 57: 1147.

    Article  Google Scholar 

  • La Porta, Rafael, Florencio Lopez-de-Silanes and Andrei Shleifer. 2006. ‘What Works in Securities Laws?’. Journal of Finance 61: 1–33.

    Article  Google Scholar 

  • Licht, Amir N., Chanan Goldschmidt and Shalom H. Schwartz. 2005. ‘Culture, Law and Corporate Governance’. International Review of Law and Economics 25: 229–255.

    Article  Google Scholar 

  • Mahoney, Paul G. 2001. ‘The Common Law and Economic Growth: Hayek Might Be Right’. Journal of Legal Studies 30: 503.

    Article  Google Scholar 

  • Morck, Randall, Bernard Yeung and Wayne Yu. 2000. ‘The Information Content of Stock Markets: Why Do Emerging Markets Have Synchronous Stock Price Movements?’. Journal of Financial Economics 58: 215–260.

    Article  Google Scholar 

  • Nenova, Tatiana. 2003. ‘The Value of Corporate Voting Rights and Control: A Cross-Country Analysis’. Journal of Financial Economics 68: 325–351.

    Article  Google Scholar 

  • Roe, Mark. 1996. Strong Managers, Weak Owners. Princeton: Princeton University Press.

    Book  Google Scholar 

  • Romano, Roberta. 1987. ‘State Competition for Corporate Charters’. Cardozo Law Review 8: 709.

    Google Scholar 

  • Rose, Caspar. 2005. ‘The Composition of Semi-Two Tier Corporate Boards and Firm Performance: The Danish Evidence’. Corporate Governance: An International Review 13: 691–701.

    Article  Google Scholar 

  • Selten, Reinhard. 1973. ‘A simple model of imperfect competition where 4 are few and 6 are many’. International Journal of Game Theory 2: 141–201.

    Article  Google Scholar 

  • Servaes, Henri. 1991. ‘Tobin’s Q and the Gains from Takeovers’. Journal of Finance 47: 409–419.

    Article  Google Scholar 

  • Shavell, Steven. 1987. Economic Analysis of Accident Law. Cambridge, MA: Harvard University Press.

    Google Scholar 

  • Shleifer, Andrei and Robert W. Vishny. 1997. ‘A Survey of Corporate Governance’. Journal of Finance 52: 737–783.

    Article  Google Scholar 

  • Shleifer, Andrei and Daniel Wolfenzon. 2002. ‘Investor Protection and Equity Markets’. Journal of Financial Economics 66: 3–27.

    Article  Google Scholar 

  • Spamann, Holger. 2005. Recoding LLSV’s Law and Finance. Draft, August 22.

  • Stultz, Rene M. 2005. ‘The Limits of Financial Globalization’. Journal of Finance 60: 1595–1638.

    Article  Google Scholar 

  • Weston, J. Fred, Kwang S. Chung and Juan A. Siu. 1998. Takeovers, Restructuring and Corporate Governance. 2nd edn. Upper Saddle River, NJ: Prentice Hall.

    Google Scholar 

  • Wurgler, Jefferey. 2000. ‘Financial Markets and the Allocation of Capital’. Journal of Financial Economics 58: 187–214.

    Article  Google Scholar 

  • Zingales, Luigi. 1995. ‘What Determines the Value of Corporate Votes?’. Quarterly Journal of Economics 110: 1047–1073.

    Article  Google Scholar 

  • Zweigert, K. and H. Kötz. 1998. An Introduction to Comparative Law. 3rd edn. Oxford: Oxford University Press.

    Google Scholar 

Download references

Author information

Authors and Affiliations

  1. Department of International Economics and Management, Copenhagen Business School, Porcelænshaven 24A, Denmark, 2000, Frederikberg

    Caspar Rose

Authors
  1. Caspar Rose
    View author publications

    You can also search for this author in PubMed Google Scholar

Corresponding author

Correspondence to Caspar Rose.

Rights and permissions

Reprints and permissions

About this article

Check for updates. Verify currency and authenticity via CrossMark

Cite this article

Rose, C. The Challenges of Quantifying Investor Protection in a Comparative Context. Eur Bus Org Law Rev 8, 369–400 (2007). https://doi.org/10.1017/S1566752907003692

Download citation

  • Published:

  • Issue Date:

  • DOI: https://doi.org/10.1017/S1566752907003692

Keywords

Search

Navigation