Law and Finance

Florencio López de Silanes, Universiteit van Amsterdam
Rafael La Porta , Amos Tuck School of Business Administration at Dartmouth College
Andrei Shleifer , Harvard University, Department of Economics
Robert Vishny , University of Chicago Business School

Abstract

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.