Law,Finance, and Economic Growth |
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| Institution: | 1. School of Finance, Central University of Finance and Economics, 39 South College Road, Haidian District, Beijing, China;2. IESEG School of Management, 1 parvis de La Défense, 92044 Paris La Défense Cedex, France;1. Columbia Business School, 3022 Broadway, Uris Hall, New York, NY 10027, United States;2. National Bureau of Economic Research, 1050 Massachusetts Avenue, Cambridge, MA 02138, United States;3. Pontificia Universidad Católica de Chile School of Management, Avda. Vicuña Mackenna 4860, Santiago, Chile;4. DePaul University, Driehaus College of Business, 1 E Jackson Boulevard, Chicago, IL 60604, United States;5. Northwestern University, Kellogg School of Management, 2001 Sheridan Road, Evanston, IL 60208, United States;2. School of Finance, Shanghai Lixin University of Accounting and Finance, Shanghai, China;3. Institute of Finance and Banking, Chinese Academy of Social Sciences, Beijing, China |
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| Abstract: | This paper examines how the legal environment affects financial development, and then asks how this in turn is linked to long-run economic growth. Financial intermediaries are better developed in countries with legal and regulatory systems that (1) give a high priority to creditors receiving the full present value of their claims on corporations, (2) enforce contracts effectively, and (3) promote comprehensive and accurate financial reporting by corporations. The data also indicate that the exogenous component of financial intermediary development—the component defined by the legal and regulatory environment—is positively associated with economic growth. Journal of Economic Literature Classification Numbers: G21, K12, O16 |
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