Law and Finance: Common Law and Civil Law Countries Compared—An Empirical Critique

The ‘theory of law and finance’ argues that the common law system provides a better framework for financial development and economic growth than the civil law tradition. This paper identifies a number of problems that cast doubt on the soundness of the empirical basis of this literature. However, this analysis supports the idea that the legal tradition is a major factor in shaping corporate law. In particular, while there is not much evidence that common law countries protect financial investors better than civil law countries I find support for the assumption that financial investors are treated differently across legal families.