Law, politics, and finance

By Thorsten Beck, Asli Demirgüç-Kunt, Ross Levine. 2001

128 citations recorded by the source corpus.

The authors assess three established theories about the historical determinants of financial development. They also propose an augmented version of one of these theories. The law and finance view, stresses that different legal traditions emphasize, to differing degrees, the rights of individual investors relative to the state, which has important ramifications for financial development. The dynamic law and finance vie, augments the law and finance view, stressing that legal traditions also differ in their ability to adapt to changing conditions. The politics and finance view, rejects the central role of legal tradition, stressing instead that political factors shape financial development. The endowment view, argues that the mortality rates of European settlers, as they colonized various parts of the globe, influenced the institutions they initially created, which has had enduring effects on institutions today. When initial conditions produced an unfavorable environment for European settlers, colonialists tended to create institutions designed to extract resources expeditiously, not to foster long-run prosperity. The authors' empirical results are most consistent with theories that stress the role of legal tradition. The results provide qualified support for the endowment view. The data are least consistent with theories that focus on specific characteristics of the political structure, although politics can obviously affect the financial sector. In other words, legal origin - whether a country has a British, French, German, or Scandinavian legal heritage - helps explain the development of the country's financial institutions today, even after other factors are controlled for. Countries with a French legal tradition, tend to have weaker financial institutions, while those with common law, and German civil laws, tend to have stronger financial institutions.

Subfields: Accounting, Demography, Finance

View Paper: https://www.semanticscholar.org/paper/7719d34e7b14c16f05828901fc6bc90d1ed505b9

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Citations in the corpus

Bank Regulation and Supervision: What Works Best? (2001, background): “23 See Rajan and Zingales (2001) and Beck, Demirguc-Kunt, and Levine (2001b) for a discussion of openness and financial sector development.”
Absorptive capacity and the effects of foreign direct investment and equity foreign portfolio investment on economic growth (2004, background): “While a more detailed outline can be found elsewhere (La Porta et al., 1997, 1998, 2000; Levine, 2000; Beck et al., 2001), contracts address critical agency problems and are the linchpin of 5nancial securities.”
The Political Economy of Financial Development (2004, methodology): “29 See Polity IV project Data-set Users Manual 30 The scale therefore discriminates between developed democratic systems on the basis of their limitation on the powers of the chief executive, for example France’s democracy score increases with the onset of “cohabitation” during the Mitterrand presid”
What determines the quality of institutions (2002, background): “Historical case studies argue that competition reduces rents and therefore improves the quality of institutions, often by reducing opposition to change; this is the case made for financial development (Rajan and Zingales, 2000), and Beck et al (2000).”
Corporate Governance, Investor Protection and Performance in Emerging Markets (2004, background): “However, we find that the overall level of firm-level governance is strongly positively related to country- level measures of investor Richard (2002), Lombardo and Pagano (2000), and Beck, Demirguc-Kunt, and Levine (2001).”
Insider Trading Restrictions and Analysts' Incentives to Follow Firms (2005, background): “…and enforcement contributes to the growing literature that examines relations between legal regimes and financial market characteristics (e.g., Beck, Demirgüç-Kunt, and Levine (2001, 2003), Demirgüç-Kunt and Maksimovic (1998), La Porta et al. (1997, 1998), and Lombardo and Pagano (1999)).”
Political instability: Effects on financial development, roots in the severity of economic inequality (2011, background): “Common law systems are seen as particularly adept at protecting investors with welldeveloped legal remedies, while civil law nations, particularly French civil law nations, do not, La Porta et al. (1997, 1998) and Beck, Demirgüç-Kunt, and Levine (2001) report.”
Bank regulation and risk-taking incentives: An international comparison of bank risk (2005, background): “La Porta et al. (1998, 1999), Beck et al. (2001) , and Beck and Levine (2002) confirm that historically determined differences in legal tradition help explain international differences in financial development today.”
Privatisation Around the World: New Evidence from Panel Data (2001, unknown): “9 This is considered the standard source for this type of information, and has already been used by Beck et al. (2001).”
Are Parliamentary Systems Better? (2009, background): “Its movement through time is “sluggish” (S. Wilson & Butler, 2003; see also, N. Beck & Katz, 2001; T. Beck et al., 2000).”