Law and Structure of the Capital Markets?

Abstract

We examine whether investor protection affects capital markets in terms of the development of corporate bond markets versus that of equity markets. Using a dataset of 42 countries, we show that in countries with stronger creditor rights, corporate bond markets are more developed than equity markets. In opposition, we find only weak evidence that in countries with stronger shareholder protection, equity markets are more developed than corporate bond markets. Additionally, we find that the effects of financial reforms on capital markets are strongly dependent on the strength of investor protections in a given country and information disclosure.