What Does Not Work in Comparing Securities Laws: A Critique on La Porta et al.'s Methodology

Mathias M. Siems

Abstract

The articles by La Porta et al. are some of the most-cited pieces in economics, finance, and law. This is also true for their recent article What Works in Securities Laws?. In this study they examine the effect of securities laws on stock market developments in 49 countries. Based on various indices their main finding is that there is little evidence that public enforcement is important, but strong evidence that laws mandating disclosure and facilitating private enforcement through liability rules benefit stock markets. In this short paper, I do not question this result as such nor do I object to their economic findings. Rather this paper will discuss whether La Porta et al.'s methodology on comparative law, which is often taken for granted in Law and Finance, is accurate.