Law and Finance in Transition Economies
Article first published online: 10 JAN 2003
The European Bank for Reconstruction and Development 2000
Economics of Transition
Volume 8, Issue 2, pages 325–368, July2000
How to Cite
Pistor, K., Raiser, M. and Gelfer, S. (2000), Law and Finance in Transition Economies. Economics of Transition, 8: 325–368. doi: 10.1111/1468-0351.00047
- Issue published online: 10 JAN 2003
- Article first published online: 10 JAN 2003
- Cited By
- shareholder and creditor rights;
- legal effectiveness;
- external finance.
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.