Law and Finance: Why Does Legal Origin Matter?

By Thorsten Beck, Asli Demirgüç-Kunt, Ross Levine. 2002

1,177 citations recorded by the source corpus.

A growing body of work suggests that cross-country differences in legal origin help explain differences in financial development. The authors assess two theories of why legal origin influences financial development. First, the"political"channel stresses that (1) legal traditions differ in the priority they give to the rights of individual investors compared with the state, and that (2) this has repercussions for the development of property rights and financial markets. Second, the"adaptability"channel holds that (1) legal traditions differ in their ability to adjust to changing commercial circumstances, and (2) legal systems that adapt quickly to minimize the gap between the contracting needs of the economy and the legal system's capabilities will foster financial development more effectively than would more rigid legal traditions. The authors use historical comparisons and cross-country regressions to assess the validity of these two channels.

Subfields: Finance, Information Systems, Sociology and Political Science

View Paper: https://www.semanticscholar.org/paper/b96a57460d49bfad10a3781d56d788b074f93a6e

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Citations in the corpus

On the Effect of Foreign Aid on Corruption (2012, methodology): “Borrowing from Beck et al.(2003) with use the TSLS-IV with Heteroscedasticity and Autocorrelation Consistent(HAC) standard errors.”
Government Quality Determinants of Stock Market Performance in African Countries (2011, positive): “Countries with higher levels of per capita economic prosperity have bigger, more active and more efficient financial markets (Beck et al., 1999, 25)(4). In the third strand we lay the theoretical basis for the empirical validity of the religious instruments. Borrowing from Hearn et al.(2011), Islam ”
Portfolio and Financing Adjustments for U.S. Banks: Some Empirical Evidence (2008, neutral): “Apparently the only thing that does seem to matter is whether the financial system is built on the substructure of an efficient and flexible legal system that respects property rights and contracts (see LaPorta, Lopez-deSilanes, Shleifer, and Vishny 1998 and Beck, Demirguc-Kunt, and Levine 2003).”
Foreign aid and governance in Africa (2016, methodology): “2 Estimation technique Concurring with Beck et al. (2003) the paper adopts an Instrumental Variable (IV) estimation method.”
The Real Effects of Banking Crises: Finance or Asset Allocation Effects? Some International Evidence (2010, methodology): “The explanatory variables in the probit model are defined following Beck et al., (2006). External dependence is the averaged value over the pre-crisis period of the fraction of capital expenditures that are not financed with operative cash flow.”
Corporate Governance in Emerging Economies (2005, background): “…(e.g., Acemoglu, Johnson, and Robinson, 2001; Beck, Demirgüç-Kunt, and Levine, 2003a), the legal system’s ability to adapt to evolving economic conditions (e.g., Posner, 1973; Beck, Demirgüç-Kunt, and Levine, 2003b), and religion and cultural beliefs (e.g., Greif, 1994; Stulz and Williamson, 2003).”