Legal Determinants of External 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

Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.