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Research Programmes  Enterprise and Innovation  Corporate Governance
Research Activities  Survey
& Database Unit  Policy Evaluation Unit  SME Surveys
Other CBR Surveys |
Project:
Corporate Law and Economic Performance (Completed)
Project Leaders: John Armour, Simon Deakin, Alan Hughes , Overview
| Output
Aims Reform of corporate law is currently being considered in several countries, including the UK where a Company Law Review has been initiated by the DTI and where two substantial Consultation Papers have been published by the Law Commission. A major focus of this process of reform is the link between company law and competitiveness. This in turn raises a number of questions on which empirical research has been, so far, comparatively limited. How far do the laws governing directors’ duties affect, in practice, the processes of corporate decision making? What are the mechanisms by which rules of company law take effect within organisations? What would the consequences be of a wider recognition for ‘stakeholder’ interests within the firm? How is the evolution of company law affected by transnational harmonisation and by increasing regulatory competition? How far are we observing international convergence around a ‘Anglo-American’ model of company law which stresses shareholder value at the expense of stakeholder-protection measures?Methods The main work of this project has consisted of an empirical study of the relationship between law and economic performance. One part of the work, which was carried out by Beth Aherling, John Armour and Simon Deakin, has involved cluster analyses on a number of legal and economic variables in different country systems; the identification of correlations among labour, shareholder and creditor protection variables; and a time series exploration of the relationship between legal change and economic outcomes over time. Some of the results were presented at a seminar at Columbia University in April 2004 and will be the subject of a working paper in the spring of 2005. Further working papers are in preparation. This work does a number of things. First, it considers the possibility of functional complementarities and substitutes in national legal systems, which serve to reinforce divergence and highlight the diversity of practice within and between countries. Second, it considers critically the validity of ‘law on the books’ as a sufficient indicator of the social, cultural and institutional environment surrounding corporate governance. Third, it undertakes a consideration of a number of relationships between legal origin and economic outcomes, emphasising that such a link is highly dependent on particular conceptual definitions of ‘efficiency’ and is subject to change depending on the type of sample and the time period being considered. It is shown that legal origin is important, but does not operate in a linear way; it instead interacts with a range of other institutional processes, leading to a range of outcomes.In addition, John Armour and Douglas Cumming have carried out work examining empirically the legal conditions for the growth of SMEs. This has been published in a series of working papers. CBR WP 281, for example, compares the economic and legal determinants of venture capital investment, fundraising and exits. The paper introduces a cross-sectional and time series empirical analysis across 15 countries and 13 years of data spanning an entire business cycle. It shows that the legal environment matters as much as the strength of stock markets; that government programmes more often hinder than help the development of private equity, and that temperate bankruptcy laws stimulate entrepreneurial demand for venture capital. The results provide generalizable lessons for legal reform. In related work, John Armour and Simon Deakin were part of a team which produced a report for the Financial Services Authority on the role of soft law and the ‘comply and explain’ approach within corporate governance codes, and the link between the codes and the Listing Rules drawn up by UK Listing Authority; Brian Cheffins, Riz Mokal and Richard Nolan carried out a number of theoretical and historical analyses of the link between law and economic performance; and Simon Deakin carried out consultancy work for the ILO on corporate governance and pensions law reform.
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