Legal Origin Research Articles

Legal origins of corporate governance: Choice of law in Egypt, 1887–1914

AbstractThis paper revisits the classic question of legal origins: whether laws originating from common or civil law traditions are more effective in promoting governance rules with stronger shareholder and investor protection. But corporate governance cannot be easily disentangled from other sources that can influence firm outcomes. This paper disentangles these effects by assembling a new dataset of corporations in Egypt between 1887 and 1914. Egypt had an unusual system of incorporation. The main legal system was a close French transplant but entrepreneurs – Europeans and Egyptians alike – had the option of incorporating under any European law. This practice allowed extraordinary legal flexibility in choice of law, governance provisions, and board composition. The new findings show that companies incorporated under British law provided weaker shareholder protection than companies incorporated under French laws, especially in giving weaker voting rights to minority shareholders, preventing oversight over directors' borrowing powers, and limiting director rotation. These rules mattered for firm performance. Corporations with weaker investor protection had higher failure risk, were less profitable, and had lower firm value.

Legal systems and stock market efficiency: an empirical analysis of stock indices around the world

AbstractWe examine whether the differences in the legal origins of countries (Common Law versus Civil Law) can explain the variations in the price efficiencies of the stock markets of different countries. Based on multifractal detrended fluctuation analysis of the daily stock indices of 34 countries over 21 years, we find that the stock price indices in Common Law origin countries show greater price efficiency than the stock price indices in Civil Law countries. These results provide additional evidence that the legal origins of countries affect their economic activities and outcomes.

Firm environmental, social, governance and financial performance relationship contradictions: Insights from institutional environment mediation

Empirical studies examining firm environmental, social, governance [ESG] and financial performance have provided contradictory results. The institutional difference hypothesis (Julian and Ofori-Dankwa, 2013) has portrayed that embedded legal, cultural, social, and economic institutional environment could be behind such results. Therefore, our motivation in this study is to examine whether country-specific legal origin (civil vs. common law), investors protection rights (strong vs. weak), national culture (ESG-averse vs. ESG-seeking), and corruption level (low vs. high) play a mediating role in nourishing firm ESG performance to strengthen or weaken its financial performance around the world. Our findings show that common law countries firms, firms from ESG-seeking national culture, and firms operating in high corruption environment undertake more ESG performance to improve their financial performance. Furthermore, strong investors protection rights negatively mediate firm ESG and financial performance relationship. Economic status of a country takes an important role only in case of emerging economies firms.

Foreign Institutional Investors, Legal Origin, and Corporate Greenhouse Gas Emissions Disclosure

Foreign Institutional Investors, Legal Origin, and Corporate Greenhouse Gas Emissions Disclosure

Stock market reactions to corporate misconduct: The moderating role of legal origin

Does a country's legal regime shape stock market reactions to corporate misconduct? In the presence of conflicting legal views, efficient regulation through sanctions and deterrence is difficult to establish. Using data from 2164 environmental, social, and governance controversies over the 2010–2015 period, we examine whether the legal regime in which firms operate shapes stock markets reactions to announcement of corporate controversies. We find a larger and consistent stock market correction following corporate misconduct announcements among firms headquartered in civil law countries. As such, we report a greater correction under Scandinavian legal regime that is robust when controlling for endogeneity, self-selection, and country- and firm-level controls. Presence of litigation eliminates the incremental penalty of the civil law while higher internal and external monitoring exacerbates it. Our findings support the optimal penalty theory, in which stock market sanctions are viewed as complementary reputational penalties that balance the limits of legal enforcement mechanisms.

Capital Structure Determinants: New Evidence from the MENA Region Countries

The objective of this paper is to investigate empirically the determinants of capital structure for a sample of 1101 firms from 11 MENA region countries over the period 2003-2017. Using a comparative approach, we find that firm-specific determinants explain better differences in capital structure choices than other country-specific determinants. Comparisons between countries, sub-regions (GGC and non-GCC countries) and legal origin (Common and Civil law countries) show furthermore that there are differences in terms of significance and importance of capital structure determinants. The most important determinant in the MENA region is profitability. The firm’s capital structure is positively impacted by size, tangibility of assets and private credit and it is negatively impacted by profitability, growth opportunities, GDP growth rate and stock market capitalization as a proportion of GDP. Moreover, we find that total leverage ratio, expressed in market values, give better results than leverage ratio expressed in book values and long-term leverage ratios expressed in book and/or market values. Finally, there is some evidence that the “Jasmine Revolution” has had an impact on firms’ capital structure determinants. Specific-level determinants play a much more prominent role after the revolution than in the past.

Mapping Constitutionally Safeguarded Judicial Independence — A Global Survey

De jure judicial independence (JI) is the single most important predictor of de facto JI. In this paper, we describe under what conditions countries are likely to include JI in their constitutions. We describe and analyze both their original choice in this regard as well as change over time using a newly constructed dataset comprised of 100 countries and covering the years between 1950 and 2005. Three results stand out. First, legal origins do have an impact on the likelihood of explicitly anchoring JI in the constitution: countries belonging to the common law tradition are less likely to implement JI in their constitutions (and those with a socialist tradition are more likely to do so). Correspondingly, former British colonies are less likely to address JI explicitly as are states in the Caribbean. Second, religion has a significant impact on whether JI is included in the constitution: societies experiencing a high level of religious fractionalization are not only less likely to anchor JI in their constitutions, but are also less likely to change their constitutions in that direction later on. Finally, Muslim countries are more likely to include mention of JI, whereas Protestant countries are less likely to do so. Third, the distribution of resources within societies has important—and largely unexpected—effects: a higher percentage of family farms, a wider distribution of education, and a higher percentage of urban dwellers are all connected with a lower likelihood of JI being mentioned in the constitution.

The Role of Legal Origins in Countries Affected by the 2008 Great Financial Crisis

The Role of Legal Origins in Countries Affected by the 2008 Great Financial Crisis

Nonlinear system uniformity of audit reports in the fair value statement

The article examines the nonlinear system uniformity of audit reports in accounting at fair value. We will focus on the main issues of the audit, the methodology of which is stated, and on procedures related to the fair value of investment property, especially those related to the challenge of management estimates and the use of appraisal specialists. The uniqueness of the study is that the data consists of 235 separate audit reports of the real estate sector between 2021 and 2023 and covers 60% real estate companies in country. We found that the Big4 audit companies do not have uniformity in their audit reports. There is a statistically significant difference between the audit firms of the Big4 in the report on the problem of managerial assessment and the number of audit procedures. We also found that legal origin plays an important role when auditors report on key audit issues. The results of the study contribute to the current quality of reporting audit and literature

CEO Age and Cash Holdings around the World: The Moderating Role of Legal Origin

The worldwide growth in the level of corporate cash holding has prompted scholarly interest. Grounded on the precautionary motive of cash, we aim to provide a behavioural explanation to this phenomenon by exploring the relation between CEO age and corporate cash holdings. We further examine the institutional factor that may exert an influence on this relationship through a country’s legal systems, based on the notion that business corporations are part and parcel of the nexus of the institutions. Using an international sample of 24,989 firms from 90 countries, we find that CEO age is positively associated with the level of cash holdings. The positive impact is weakened when firms operate in countries with greater investor protection and better financial development. We demonstrate that older CEOs from common law, German law and post-socialist countries have a propensity to hold less cash. Additional robustness test supports our empirical findings.

The role of paediatrics in the abortion debate.

The role of paediatrics in the abortion debate.

The Emperor Augustus and Narratives of Legal Origin

Any legislation, whether ancient or modern, is contextualised by constitutional tradition, of which narratives of legal origins are a key part. These stories are an important source of the law’s authority and, as such, warrant particular attention. This paper re-examines the significance of the Emperor Augustus’ decision as legislator to overlook one of Rome’s key legal-aetiological narratives, the Twelve Tables, when introducing his radical package of social legislation, the leges Iuliae. As an expert statesman and an expert in legal storytelling, Augustus was acutely aware of the potency of stories. Yet stories of Rome’s first ever law code are conspicuous in their absence from narratives surrounding the leges Iuliae. Using Augustus and this controversial package of legislation as a case study, this article will evaluate the importance of origin narratives as a framework for legislation, and the significance of the stories legislators turn to in order to legitimise their laws.

Impact of accounting conservatism on IPO under-pricing: evidence from India

In this paper, we investigate whether the use of accounting conservatism in India decreases IPO underpricing, which is of attention to stakeholders and supervisors. Furthermore, the study examines how asymmetry information affects the implication of accounting conservatism for IPOs. Based on a regression analysis of 527 firms that went public through IPOs of “A” shares listed on the national stock exchanges between 2000 and 2020, the paper also examines whether the relationship between conservatism and under-pricing is robust to alternative measures of accounting conservatism, mean regressions, sample exclusions, and endogenous treatment models. The research study finds that accounting conservatism is negatively associated with the degree of IPO under-pricing, and the association between accounting conservatism and IPO under-pricing is more perceptible when information asymmetry is high. The paper’s originality should shed light on what drives IPO underpricing and how it could be affected by accounting conservatism in an Indian economy, and provide find evidence that legal origin, a factor linked to the practice of conservatism, influences the relationship between under-pricing and conservatism.

Does Corruption Discourage Entrepreneurship?

Abstract Although entrepreneurship plays a key role in economic development, its precise effect remains largely unknown. This is because it is challenging to objectively measure entrepreneurship and identify its determinants. In this paper, we analyze the effect of a particular feature of the institutional landscape, namely, corruption, on entrepreneurship. It is expected that corruption discourages entrepreneurship because it undermines fair competition. We use two proxies for entrepreneurship that are widely used in the literature: (1) nascent entrepreneurship collected from Global Entrepreneurship Monitor, and (2) entry rate defined as the number of new firms divided by the total number of previous year's registered businesses, collected from World Bank Group Entrepreneurship Survey. We find that better control of corruption promotes entrepreneurship. Our evidence is stronger when we use entry rate as a proxy of entrepreneurship. Our findings are preserved when we add other determinants of entrepreneurship drawn from the literature. When we use legal origins as instruments for corruption, our results remain essentially the same. The size of population, a proxy for market size, is positively associated with entrepreneurship while corporate taxes are negatively associated.

Legal heritage and urban slums

AbstractThis paper studies the effect of legal origins (common law vs. civil law) on contemporary slum formation in developing countries. First, we provide a cross‐country correlation analysis. Second, we provide a regression discontinuity analysis using household data from Cameroon. The results suggest that a common law heritage is associated with a lower probability of slum conditions. The legal philosophies transplanted through colonization appear to be associated with the pattern of contemporary urban housing stocks in developing countries.

Does the past matter? Unravelling the temporal interdependencies of institutions in the success of public–private partnerships

ABSTRACT This paper examines the impact of institutional forces – legal origin, current institutions, and institutional stability – and their relationship with the success of 6,805 public – private partnerships (PPPs) deployed in 57 developing economies in the period 1997–2017. The results indicate that better current institutions and higher stability influence the success of PPPs. Furthermore, when legal origin, current institutions, and stability are positively aligned, their interaction has a significant impact on PPPs’ performance. The findings are consistent with complementary and substitution institutional effects, which could help policymakers and practitioners to identify success factors for these agreements.

Dynamics of corporate governance mechanisms - family firms’ performance relationship- a meta-analytic review

The corporate board is considered an effective corporate governance mechanism (CGM) of family firms (FF), playing a critical monitoring role and enhancing FF performance. FF and corporate governance (CG) literature, however, shows mixed opinions about the relationship between various board attributes and its impact on FF performance. FFs are, in general, quite different from non-FFs in their ownership structures, family shareholders’ involvement and control on the board, and the implications of the agency problem. Therefore, the association between governance mechanisms (in the form of board attributes) and FF performance is not null. The present study aims to provide a clearer understanding of the relationships between board attributes and FF performance by performing a meta-analysis of 47 recent empirical publications in varying contextual settings. Although results indicated that several board attributes have significant relationships with FF performance, variations in their strength and direction were reported in two contextual settings: country culture and the legal origin of the firm. Our results provide deeper insights into effective CG for FFs and concrete suggestions for equipping the board with suitable attributes to enhance firm performance. This study explains why managers should consider contextual settings when making decisions about an FFs’ board structure.

Conflict or Cooperation: A Survival Analysis of the Relationship between Regional Trade Agreements and Military Conflict

Abstract This paper examines the timing behind the decision of countries to enter into regional trade agreements or interstate military conflicts, considering these two potential actions as substitute strategies. Using bilateral data from 1950 to 2014, I employ survival analysis to examine the factors that determine the likelihood of two countries entering into a regional trade agreement or a military conflict at any point in time. Historical or recent wars are posited to raise the gains from trade and therefore increase the likelihood that two countries choose to join the same trade agreement. On the other side, the existence of a strong trade relationship may raise the opportunity cost of entering into a conflict; bilateral trade flows and common membership in a regional trade agreement are posited to impact the likelihood of conflict. Other explanatory variables that affect the likelihood of either a common trade agreement or a military conflict include economic size, measured as the product of and the difference in the two countries’ GDPs; level of development, measured as the product of and the difference in the two countries’ per-capita GDPs; geography, measured by distance, contiguity, landlocked status, and island status; institutional linkages, represented by a common language, a colonial relationship, or a common legal origin; and political variables, including WTO membership, democracy, military alliances, and being a major oil producer. Results show that economic, geographic, institutional, and political variables all influence the probability that two countries enter into a conflict or join the same regional trade agreement.

The Unfolding Destiny of Union Citizenship: From a Fundamental Status to a Status of Genuine Substance

Abstract This article analyses the legal origins of the ‘substance of rights’ doctrine, and its judicial development since its creation in landmark Union citizenship cases over a decade ago. It is demonstrated how the status of Union citizenship has evolved from being a proclaimed fundamental status for the individual in a lawful cross-border situation, to an increasingly operational and legally effective status regardless of the nature of the free movement situation. Under a genuinely substantive status of Union citizenship, any and all Member States are obligated to neither restrict freedom of movement under art. 21 TFEU, nor deprive, de jure or de facto, a Union citizen of the genuine enjoyment of the substance of Union citizenship rights under art. 20 TFEU. Thereby, the relevance of art. 20 TFEU is no longer reserved to the Union citizen’s relationship to their home Member State. In addition, it is argued that, as the jurisdictional spheres of art. 21 TFEU and 20 TFEU merge, the legal mechanisms of EU fundamental rights protection should also be streamlined across Directive 2004/38, art. 21 TFEU and art. 20 TFEU; thereby giving further substance to the citizenship ideal of civis europaeus sum.

Settlement Around the World: Settlement Rates in the Largest Economies

Abstract This article presents the first rigorous, multi-country analysis of settlement rates. Data on settlement were collected for twenty-three of the twenty-five largest economies. Settlement rates vary greatly, from below 15% in France, Belgium, and Russia, to over two-thirds in Australia. Settlement rates also vary by subject matter, with settlement rates generally highest in tort, especially in the U.S. There are also dramatic differences in settlement rates by legal origin, with common law countries generally having the highest settlement rates. Because settlement rates in civil law countries are so low, selection effects may not be a significant problem for empirical work involving them. Higher settlement rates are correlated with early disclosure and shorter court delays, but more research is needed to explain the large differences in settlement rates.