Abstract

This article is part of a larger international investigation of
the effects of a country’s legal origins on the style of business regulation.
We employ an innovative ‘leximetric’ methodology to numerically code the
protective strength of Australian corporate law for both shareholder and
creditor protection for the period 1970 to 2010. This leximetric methodology
has been used in a prominent international debate concerning the development
of legal rules and the effects of different styles of regulation on a range of
economic outcomes—the legal origins debate. Drawing on similar data
compiled by Armour, Deakin, Lele and Siems in five other countries (France,
Germany, India, the UK and the US) for the period 1970 to 2005, we compare
changes in the level of protection afforded to Australian shareholders and
creditors with developments in other countries. Our analysis finds that in
Australia there was a sustained upward trend in shareholder protection, but not
in the case of creditor protection. Compared to the five other countries, the
level of protection afforded to shareholders under Australian law was
relatively high, and this was the case for the level of protection afforded to
creditors as well. We also examine the extent of convergence and divergence
in shareholder and creditor protection among the countries in the study. We
find persistent divergence in shareholder protection, with the extent of
divergence in 2005 similar to that in 1970. For creditor protection, we find
increasing divergence among the countries over the period of study. Our
findings are not supportive of legal origins theory.

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