Patterns of Legal Change: Shareholder and Creditor Rights in Transition Economies

Abstract

This paper analyses changes in the legal protection of shareholder and creditor rights in 24 transition economies from 1990 to 1998. It documents differences in the initial conditions and a tendency towards convergence of formal legal rules as the result of extensive legal reforms. Convergence seems to be primarily the result of foreign technical assistance programs as well as of harmonisation requirements for countries wishing to join the European Union. The external supply of legal rules not withstanding, the pattern of legal reforms suggests that law reform has been primarily responsive, or lagging, rather than leading economic development. In comparison, the pre-socialist heritage of transition economies has little explanatory power for the observed patterns of legal change. However, countries with German legal heritage seem to favour creditor over shareholder protection and display substantially better creditor protection than other transition economies. The paper discusses the implications of the response pattern of legal change with externally supplied legal solutions for the prospects of effective law enforcement and compliance with the law in transition economies.

JEL Classification: K22, K40, P20