Journal of Law, Finance, and Accounting > Vol 3 > Issue 1

Is There a Relationship Between Shareholder Protection and Stock Market Development?

Simon Deakin, University of Cambridge, UK, Prabirjit Sarkar, University of Cambridge, UK, Mathias Siems, Durham University, UK,
Suggested Citation
Simon Deakin, Prabirjit Sarkar and Mathias Siems (2018), "Is There a Relationship Between Shareholder Protection and Stock Market Development?", Journal of Law, Finance, and Accounting: Vol. 3: No. 1, pp 115-146.

Published: 31 May 2018
© 2018 S. Deakin, P. Sarkar and M. Siems
JEL Codes: G33, G34, K22, O16
Corporate governanceShareholder protectionFinancial developmentStock market development

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In this article:
1. Introduction
2. Trends in Shareholder Protection Over Time: Leximetric Data and Methodology
3. The Financial Impact of Legal and Regulatory Changes: Econometric Analysis
4. Interpretation
5. Conclusion


The paper uses recently created datasets measuring legal change over time in a sample of 28 developed and emerging economies to test whether the strengthening of shareholder rights in the course of the mid-1990s and 2000s promoted stock market development in those countries. It finds only weak and equivocal evidence of a positive effect of shareholder protection on market capitalisation, the value of stock trading, and the turnover ratio, and a negative impact on the number of listed companies. There is stronger evidence of reverse causality, in the sense of stock market development at country level generating changes in shareholder protection law. We conclude, firstly, that legal reforms were at least in part an endogenous response to stock market development and not simply a reaction to the generation of global standards; but, secondly, that the laws passed in response to the demand for shareholder empowerment did not consistently have the expected impact on financial markets, and may have had some negative and perverse results.