n Acta Juridica - Corporate governance, finance and growth : unravelling the relationship : corporate governance and mergers & takeovers : part ll




Company law systems around the world have seen a considerable strengthening of shareholder rights in the past 15 years, with board structure and the regulation of takeover bids among the areas most affected by change. This shift reflects a widely held consensus to the effect that shareholder-orientated company law has an important role to play in stimulating financial development and improving managerial performance. This paper looks empirically at the evidence behind this assumption. The view that promoting independent boards and an active market for corporate control contributes to greater financial development and firm-level performance is seen to have little support at the empirical level. Analysis of newly constructed longitudinal data on changes in company law in a sample of 20 developed, developing and transition systems shows no correlation between the strengthening of shareholder rights since the mid-1990s and financial development indicators over the same period. While stock markets are a significant source of external finance for firms in a developing country context, there is evidence of their decreasing effectiveness in fulfilling this role in developed countries, particularly in those with shareholder-orientated company law and corporate governance systems. For developed and developing countries alike, reforms based on the promotion of independent boards and hostile takeover bids could well have been a distraction in the search for the right institutional mix.


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