Law and Finance in Transition Economies

37 Pages Posted: 19 Mar 2000

See all articles by Katharina Pistor

Katharina Pistor

Columbia University School of Law

Martin Raiser

European Bank for Reconstruction and Development

Stanislaw Gelfer

Credit Suisse First Boston

Abstract

This paper offers the first comprehensive analysis of legal change in the protection of shareholder and creditor rights in transition economies and its impact on the propensity of firms to raise external finance. Following La Porta et al. (1998), the paper constructs an expanded set of legal indices to capture a range of potential conflicts between different stakeholders of the firm. It supplements the analysis of the law on the books with an analysis of the effectiveness of legal institutions. Our main finding is that the effectiveness of legal institutions has a much stronger impact on external finance than does the law on the books, despite legal change that has substantially improved shareholder and creditor rights. This finding supports the proposition that legal transplants and extensive legal reforms are not sufficient for the evolution of effective legal and market institutions.

Keywords: shareholder and creditor rights, legal effectiveness, external finance

JEL Classification: K22, K40, O16, P34

Suggested Citation

Pistor, Katharina and Raiser, Martin and Gelfer, Stanislaw, Law and Finance in Transition Economies. Available at SSRN: https://ssrn.com/abstract=214648 or http://dx.doi.org/10.2139/ssrn.214648

Katharina Pistor (Contact Author)

Columbia University School of Law ( email )

435 West 116th Street
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Martin Raiser

European Bank for Reconstruction and Development ( email )

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United Kingdom
+44 20 7338 7231 (Phone)
+44 20 7338 6110 (Fax)

Stanislaw Gelfer

Credit Suisse First Boston

11 Madison Avenue
New York, NY 10010
United States

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