Refinancing of Shanghai Gm

Journal of Financial Economics 58 (2000) 3}27

Investor protection and corporate governance

Rafael La Porta , Florencio Lopez-de-Silanes , Andrei Shleifer *, Robert Vishny

Department of Economics, Harvard University, Cambridge, MA 02138, USA John F. Kennedy School of Government, Harvard University, Cambridge, MA 02138, USA Graduate School of Business, University of Chicago, Chicago, IL 60637, USA Received 16 June 1999; received in revised form 11 October 1999

Abstract Recent research has documented large di!erences among countries in ownership concentration in publicly traded "rms, in the breadth and depth of capital markets, in dividend policies, and in the access of "rms to external "nance. A common element to the explanations of these di!erences is how well investors, both shareholders and creditors, are protected by law from expropriation by the managers and controlling shareholders of "rms. We describe the di!erences in laws and the e!ectiveness of their enforcement across countries, discuss the possible origins of these di!erences, summarize their consequences, and assess potential strategies of corporate governance reform. We argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank-centered and market-centered "nancial systems. 2000 Elsevier Science S.A. All rights reserved. JEL classixcation: G21; G28; G32 Keywords: Investor, protection; Corporate governance; Law

We are grateful to Nicholas Barberis, Simeon Djankov, Oliver Hart, Michael Jensen, Simon Johnson, Ross Levine, and Daniel Wolfenzon for helpful comments, and also to the NSF for "nancial support of this research. * Corresponding author. Tel.: 617-495-5046; fax: 617-496-1708. E-mail address: ashleifer@harvard.edu (A. Shleifer).

0304-405X/00/$ - see front matter 2000 Elsevier Science S.A. All rights reserved. PII: S 0 3 0 4 - 4 0 5 X ( 0 0 ) 0 0 0 6 5 - 9

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