Law and Finance Revisited: Evidence from African Countries

The law and finance theory essentially states that legal origins are a significant determinant of financial development. The conclusion from the law and finance theory is that countries whose legal traditions derived from British Common Law have better developed financial markets than countries following French Civil Law. This study conducted an empirical investigation of the law and finance theory for African countries. Our empirical results showed that legal origins are insignificant in explaining financial development but rather, legal effectiveness significantly explains cross‐country differences in financial development in Africa. We concluded that the law and finance theory does not hold in African countries.