An Empirical Analysis of Company Law Reforms in 30 Countries, 1970-2013 – Shareholder Protection As a Means to Stimulate Stock Markets?

Recent decades have seen a growing internationalisation in debates about company law reform. International organisations, such as the World Bank and the OECD, aim to promote good models of corporate governance and domestic law-makers have the aspiration to catch up with legal innovations of other countries in order to ensure the competitiveness of their companies. In academia it is today also common to teach and write about corporate governance beyond the domestic level.

This trend has seen the emergence of certain key paradigms. It is suggested that these can be summarised as follows: first, there is the frequent view that the development of company law is path-dependent, and that therefore the core characteristics of a country’s law are persistent and not subject to frequent changes or major shifts. Second, it is often thought that a market-oriented conception of company law has become the dominant one, in particular as we may observe an “Americanisation” of company law in many countries of the world. Third, in order to explain the remaining differences in strength and forms of shareholder protection, many scholars claim that legal origins and the stage of economic development are the most decisive factors.

However, the emergence of those paradigms can also be thought of as problematic as far as they do not hold up to empirical scrutiny. This paper aims to provide such an empirical assessment. It uses an original dataset about the development of shareholder protection in 30 countries between 1990 and 2013. This dataset was constructed as part of two interrelated projects at the Centre for Business Research (CBR) at the University of Cambridge and commentators have called it “more sophisticated” than alternative datasets on shareholder protection (Pacces 2011). The paper assesses this shareholder protection dataset with tools of descriptive statistics, time series and cluster analysis. Doing so, it can be shown that the aforementioned paradigms have weakened, or even disappeared, in recent years.

In addition, it is the aim to present initial results of the econometric analysis of the dataset in terms of the impact of shareholder protection on stock market development. Therefore, this question explicitly addresses the often naïve view about a one-sided link between legal reform and economic development. The crucial advantage of the CBR shareholder protection dataset is that it is based on a relatively long time series. Thus, analysing the CBR dataset with advanced panel cointegration techniques can allow for potential breaks and can be robust to the problem of endogeneity. This part of the research will also examine which elements of shareholder protection may be the decisive one and whether excessive shareholder protection may not also have a negative effect.