* Victor Nee: Goldwin Smith Professor, Department of Sociology, 330 Uris Hall, Cornell University, Ithaca, NY 14853. Sonja Opper: Gad Rausing Professor, Department of Economics and Economic Research Institute, P.O. Box 7082, SE-220 07 Lund. We are grateful for incisive comments on an earlier draft of this paper from the late John Freeman, Oliver Hart, Siegwart Lindenberg, Douglass C. North and Oliver Williamson. We thank participants of seminars and panels: at the Oliver Williamson Seminar Series, Haas School of Business, University of California at Berkeley; the Conference on the Future of the Social Sciences (2007); International Society for New Institutional Economics (Barcelona, 2006); European Economic Association (Vienna, 2006), American Economic Association (Chicago, 2007); and American Sociological Association (Montreal, 2007), where we presented our paper.
Bureaucracy and Financial Markets
Version of Record online: 14 APR 2009
© 2009 Blackwell Publishing Ltd
Volume 62, Issue 2, pages 293–315, April 2009
How to Cite
Nee, V. and Opper, S. (2009), Bureaucracy and Financial Markets. Kyklos, 62: 293–315. doi: 10.1111/j.1467-6435.2009.00437.x
- Issue online: 14 APR 2009
- Version of Record online: 14 APR 2009
Recent research on financial market development has focused on the nature of the legal system. The law and finance literature, however, exclusively focuses on the abuse of management power as a major cause of shareholder expropriation. We examine the role of the administrative capability of the state in providing and guaranteeing the institutional foundations for financial market development. The characteristic feature of bureaucracy is predictable, calculable and methodical performance. Our analysis of the linkage between bureaucratic quality and financial market development confirms our hypothesis that arm's length finance not only needs a reliable legal environment, but also bureaucratic effectiveness (1) We provide evidence that state bureaucratic performance plays a crucial role in determining financial market development; (2) We find that legal origin plays an indirect role, as it affects the financial market development through the channel of the quality of state bureaucratic performance, but it does not exert a direct and independent effect.