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⁸ Roe (1996), supra n. 6; Bebchuk, and Roe, , “A Theory of Path Dependence in Corporate Governance and Ownership”, 52 Stanf. L Rev. (1999) 127CrossRefGoogle Scholar. See also Gordon, supra n. 7.

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¹¹ Black, , “Is Corporate Law Trivial?: A Political and Economic Analysis”, 84 AW Univ L Rev. (1990) 542–597Google Scholar. The argument holds that efficient capital markets, well-functioning and competitive managerial labor, and product markets, are more effective constraints on managerial power than formal legal constraints.

¹² Black, and Kraakman, , “A Self-Enforcing Model of Corporate Law”, 109 Harv. L. Rev. (1996); 1911–1982CrossRefGoogle Scholar. Hay, et al. , “Toward a Theory of Legal Reform”, 40 European Economic Review (1996) 559–567.CrossRefGoogle Scholar

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¹⁴ La Porta, et al. (1998), supra n. 2; La Porta, et al. (1997), ibid. The authors of these studies also mention the importance of effective enforcement institutions. Yet, even if these variables are controlled, the contents of legal rules and their origin seems to matter.

¹⁵ Levine (1998), supra n. 2.

¹⁶ La Porta, et al. (1998), supra n. 2.

¹⁷ Bebchuk and Roe (1999), supra n. 8; Bebchuk, , “A Rent-Protection Theory of Corporate Ownership and Control”, 7203 NBER Working Paper Series (1999)Google Scholar; Pistor, , “Law as a Determinant for Stockmarket Development in Eastern Europe”, in: Murrell, (ed.), Assessing the Value of Law in Transition Economies, (Ann Arbor: University of Michigan Press 2000 (forthcoming)).Google Scholar

¹⁸ Despite these differences in initial conditions, commentators agree that transition economies are increasingly converging on a control structure with concentrated ownership rather than sustaining dispersed ownership. See Berglöf, , “Corporate Governance in Transition Economies: The Theory and Its Policy Implications”, in: Aoki, and Kim, (eds.), Corporate Governance in Transitional Economies, (Washington, D.C., The World Bank 1995) pp. 59–98Google Scholar with data for the largest companies in three transition economies. For a theoretical explanation of the instability of non-control structures, see Bebchuk (1999), supra n. 17.

¹⁹ Brainard, , “Reform in Eastern Europe: Creating a Capital Market”, Economic Rev. (1991) 49–58Google Scholar; EBRD, Transition Report (London, European Bank for Reconstruction and Development (EBRD) 1998).Google Scholar

²⁰ La Porta, et al. (1998), supra n. 2.

²¹ Many of the countries in Central and Eastern Europe modeled their legal systems in the interwar period on the German system. In the countries of South-Eastern Europe that used to be part of the Ottoman empire, French law had stronger influence, mostly because of the reception of French law in the 19th century when the Ottoman empire reformed its legal system. Nevertheless, the borrowing does not suggest that the model was followed closely, or other legal systems were not consulted in the process. A brief summary of the history of formal private law in different countries can be found in: International Encyclopedia of Comparative Law, National Reports, (Tübingen, J.C.B. Mohr 1972)Google Scholar. For a summary of the socialist legal system, see Zweigert, and Kötz, , Einführung in die Rechtsvergleichung aufdem Gebiet des Privatrechts, 2. Aufl. (Tübingen, J.C.B. Mohr Paul Siebeck 1984) pp. 332–403Google Scholar. This legal family has now been discarded from this book. See Zweigert, and Kötz, , Introduction to Comparative Law, 3rd edn. (Oxford, Clarendon Press 1998).Google Scholar

²² There is, of course, a lively debate about the relevance of legal families. The area of the law for which the legal families have been developed is the core of civil law, i.e., contract law, property rights, and torts. Constitutional and administrative law development usually do not follow the same pattern. Even for other areas of private law, including corporate law and capital market development, it is doubtful, whether a consistent set of criteria exists that makes the distinction of different legal families meaningful.

²³ Pistor(1995), op. cit. n. 1.

²⁴ Butler, , Soviet Law, 2nd edn. (London, Butterworths 1988)Google Scholar; Feldbrugge, , Russian Law: The End of the Soviet System and the Role of Law, (Dordrecht, Martinus Nijhoff Publishers 1993).Google Scholar

²⁵ See Feldbrugge (1993), op. cit. n. 24, pp. 236-239 for details.

²⁶ See Elster, , Offe, and Preuss, , Institutional Design in Post-communist Societies: Rebuilding the Ship at Sea, (The Hague, NL, Cambridge University Press 1998)CrossRefGoogle Scholar, for the pattern of institutional change in Bulgaria, the Czech Republic, Hungary and Slovakia.

²⁷ La Porta, et al. (1998), supra n. 2.

²⁸ Details for the definition of variables and their coding are given in Appendix 1.

²⁹ Part of Poland, of course, received French law during the Napoleonic wars. However, subsequent German law has been stronger.

³⁰ Note that periodically Bosnia belonged to the Austro-Hungarian empire, but this has not strongly affected its legal development during the 19th century.

³¹ Owen, , The Corporation under Russian Law, 1800-1917, (The Hague, NL, Cambridge University Press 1991)CrossRefGoogle Scholar; International Encyclopedia of Comparative Law, National Reports, supra n. 22, 1.

³² La Porta, et al. (1998), supra n. 2.

³³ Ibid.

³⁴ Compare also the indicators for economic reforms of the EBRD in: EBRD (1998), supra n. 19.

³⁵ Feldbrugge, op. cit. n. 24; Pistor, , “Company Law and Corporate Governance in Russia”, in: Sachs, and Pistor, (eds.), supra n. 1,pp. 165–187Google Scholar; Gray, and Hendely, , “Developing Commercial Law in Transition Economies: Examples from Hungary and Russia”Google Scholar, ibid., pp. 139–164.

³⁶ This information was given by Alexander Shapleigh of USAID. According to USAID, the results have not been equally strong in all countries. Good results were achieved in shareholder rights reforms in Armenia, Kazakhstan, Kyrgyzstan and Romania. For creditor rights, good results were reported for Kazakhstan, Kyrgyzstan, Latvia, Poland, Romania and Ukraine. Since this assessment is highly subjective, in our analysis we include all countries that have received USAID for legal reforms of shareholder and creditor rights.

³⁷ For a discussion of the effects of the takeover guideline in Poland, see Soltysinski, , “Transfer of Legal Systems as Seen by the “Import Countries”: A View from Warsaw”, in: Drobnig, et al. (eds.), Systemtransformation in Mittel- und Osteuropa und ihre Folgen für Banken, Börsen und Kreditsicherheiten, (Tübingen, Mohr Siebeck 1998) pp. 69–82Google Scholar. Compare this with the positive evaluation of the City Takeover Code for transition economies by Coffee, , “The Lessons From Securities Market Failure: Privatization, Minority Protection, and Investor Confidence”, draft of September 1999.Google Scholar

³⁸ In comparative law methodology, analyzing the function of legal rules rather than trying to find identical legal rules in different systems has long been recognized. See Zweigert and Kötz (1984), op. cit. n. 21, who call this approach a functional approach to comparative law. Critical, however, Frankenberg, , “Critical Comparisons: Re-thinking Comparative Law”, 26 Harv. Int LJ (1985) 411–455Google Scholar. On the importance of functional substitutes in corporate governance and securities market regulation, see Coffee (1999), supra n. 7.

³⁹ Hirschman, , Exit, Voice, and Loyalty; Responses to Decline in Firms, Organizations, and States, (1970)Google Scholar; Coffee, , “Liquidity Versus Control: The Institutional Investor as Corporate Monitor”, 91 Colum. L Rev. (1991) 1277–1368.CrossRefGoogle Scholar

⁴⁰ La Porta, et al. (1997), supra n. 2.

⁴¹ Black and Kraakman, supra n. 12.

⁴² Berglöf (1995), supra n. 18; Berglöf, and Von, Thadden, “The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries”, Proceedings of the Annual Bank Conference on Development Economics, (Washington, D.C., The World Bank 1999)Google Scholar; Porta, La et al. , “Corporate Ownership Around the World”, 54 Journal of Finance (1999) 471–517.CrossRefGoogle Scholar

⁴³ Coffee (1999), supra n. 37.

⁴⁴ Unfortunately, it was not possible to obtain reliable data on changes in disclosure requirements for all countries. Most laws have provisions mandating the annual disclosure of company information to their shareholders. We did not include this variable, because of the lack of variance, and because it does not reflect the extent of disclosure requirements for publicly traded companies.

⁴⁵ Stigler, , “Public Regulation of the Securities Markets”, 27 Journal of Business (1964) 117–142CrossRefGoogle Scholar; Jarrell, , “The Economic Effects of Federal Regulation of the Market for New Security Issues”, 24 J L&Econ (1981) 613–675Google Scholar; Coffee, , “Market Failure and the Economic Case for a Mandatory Disclosure System”, 70 Virg. L Rev. (1984) 717–753CrossRefGoogle Scholar; Seligman, , “The Historical Need for a Mandatory Corporate Disclosure System,” 9 J Corp L (1983) 1–61Google Scholar; Hopt, and Baum, , “Bör-senrechtsreform in Deutschland”, in: Hopt, et al. (eds.), Börsenreform - Eine ökonomische, rechts-vergleichende und rechtspolitische Untersuchung, (Stuttgart, Schäffer-Poeschel Verlag 1997) pp. 287–467Google Scholar. The debate is now taking a new turn, where the importance of (some) regulation is acknowledged in principle, but the need for federal versus state (or decentral) regulation debated. See Romano, , “Empowering Investors: A market Approach to Securities Regulation”, 107 Yale Law Journal (1998) 2359–2430.CrossRefGoogle Scholar

⁴⁶ Pistor (1999), supra n. 17; Coffee (1999), supra n. 37. For experiences in other parts of the world see also Rosen, , “The Myth of Self-Regulation or the Dangers of Securities Regulation Without Administration: The Indian Experience”, 2 J Comp Corp L & Sec Reg (1979) 261–302Google Scholar, as well as Pistor, and Wellons, , The Role of Law and Legal Institutions in Asian Economic Development, (Hong Kong, Oxford University Press 1999), ch. 6.Google Scholar

⁴⁷ Pistor (1999), supra n. 17.

⁴⁸ This requirement typically does not apply to all joint stock companies, but only those which exceed the stipulated number of shareholders, i.e., 500 in the case of Russia and Kazakhstan.

⁴⁹ Pistor (1997), supra n. 35.

⁵⁰ Ibid.

⁵¹ In fact, in the early period many of the former Soviet Union republics required 60%. This may, however, be counter-productive, because it decreases the likelihood for a shareholder meeting to reach the quorum.

⁵² Berglöf, , “Reforming Corporate Governance: Redirecting the European Agenda”, 24 Economic Policy (1997) 93–119Google Scholar; Coffee (1999), supra n. 7.

⁵³ On the pros and cons of the US Bankruptcy Code see Baird, , The Elements of Bankruptcy, (New York, Westbury 1993) p. 283.Google Scholar

⁵⁴ Gray and Hendely (1997), supra n. 35.

⁵⁵ Wood, , Comparative Law of Security and Guarantees, Law and Practice of International Finance (London, Sweet and Maxwell 1995).Google Scholar

⁵⁶ Oda, , “Law on Secured Transaction in Russia”, in: Simons, (ed.), The Russian Civil Code, (The Hague, Kluwer Law International 2000) (forthcoming).Google Scholar

⁵⁷ Pistor, op. cit. n. 1; Summers, , “Recent Secured Transaction Law Reform in the Newly Independent States and Central and Eastern Europe”, 23 Rev of Central and Eastern European Law (1997) 177–203.CrossRefGoogle Scholar

⁵⁸ For a detailed analysis of Russian law on security interests see Oda, supra n. 56.

⁵⁹ EBRD, Model Law on Secured Transactions, (London, EBRD 1994).Google Scholar

⁶⁰ According to information obtained from the EBRD, the following countries have established registers for security interests which used the EBRD model law or US law: Azerbaijan (1998); Belarus (1999); Bulgaria (1996); Estonia (1996); FYR Macedonia (1998); Georgia (1997); Hungary (1997); Kazakhstan (1998); Kyrgyzstan (1997); Latvia (1999); Lithuania (1998); Moldova (1996 – simplified version now under revision); Poland (1998); Romania (1999); Ukraine (1997/99); Uzbekistan (1998). The enactment of these laws, however, is only the first step. Functioning registries for security interests in movables apparently exist as of now only in Bulgaria, Hungary, Latvia, Lithuania, with some reservations in Poland, and apparently since March 1999 in Ukraine.

⁶¹ Summers (1997), supra n. 57.

⁶² An example is the German law on concerns. Art. 317 of the German law on marketable share companies (AktG), for example, states that a company which controls another one without having concluded a control contract, may be held liable for damages incurred by that company or its shareholders, if it made that company conclude detrimental transactions without compensation.

⁶³ Compare Art. 106 of the Russian Civil Code with Art. 6, section 3 of the Joint Stock Companies Act.

⁶⁴ Note: since we do not code for law in the former Yugoslav republics, our coding is likely to overstate the absence of law in this region.

⁶⁵ Information obtained from the EBRD.

⁶⁶ Oda (1999), supra n. 56.

⁶⁷ Note that they were first included in the Civil Code, which borrowed heavily from the Dutch Civil Code.

⁶⁸ Avilov, et al. , General Principles of Company Law for Transition Economies, (OECD, 1999)Google Scholar, strongly advocate that such provisions should be strictly limited to these cases.

⁶⁹ Roe, , “Some Differences in Corporate Structure in Germany, Japan, and the United States”, 102 Yale LJ (1993) 1927–2003CrossRefGoogle Scholar; Berglöf (1995), supra n. 18; Aoki, , “Controlling Insider Control: Issues of Corporate Governance in Transition Econmies”, in: Aoki, and Kim, (eds.), supra n. 18, pp. 3–32.Google Scholar

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⁷⁴ Claessens, et al. , Ownership and Corporate Governance: Evidence from the Czech Republic, International Symposium on Capital Markets and Enterprise Reform (Washington D.C., World Bank 1996).Google Scholar

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⁷⁶ Obviously, this can be only a rough estimate of the relative importance of shareholder and creditor rights, as the variables included are not encompassing, and not all variables may have equal weight.

⁷⁷ EBRD (1998), supra n. 19, p. 118.

⁷⁸ Boycko, et al. , “Voucher Privatization”, 35 Journal of Financial Economics (1993) 249CrossRefGoogle Scholar; Frydman, and Rapaczynski, , “Markets and Institutions in Large Scale Privatization: An Approach to Economic and Social Transformation in Eastern Europe”, in: Corbo, et al. (eds.), Reforming Central and Eastern European Economies: Initial Results and Challenges, (Washington, D.C., The World Bank 1992) pp. 253–274Google Scholar; Classens et al., (1996), supra n. 74.

⁷⁹ EBRD (1998), supra n. 19.

⁸⁰ La Porta, et al. (1997), supra n. 2.

⁸¹ Blumberg, , The Multinational Challenge to Corporation Law (New York, Oxford University Press 1993) p. 316Google Scholar; Dunlavy, , “Corporate Governance in the Late 19th Century Europe and USA – The Case of Shareholder Voting Rights”, in: Hopt, et al. (ed.), supra n. 75, pp. 5–39Google Scholar. Accounts of the development of corporate law in the US and Germany since the 19th century show a close interaction between legal and economic development. See Assmann, in: Hopt, and Wiedemann, (eds.), Aktiengesetz: Groβkommentar, Introduction, Vol. I for Germany, (Berlin, Walter de Gruyter 1992)Google Scholar. For a summary of the development in the US, cf. Coffee, , “The Mandatory/Enabling Balance in Corporate Law: An Essay on the Judicial Role”, 89 Colum. L Rev. (1989) 1618–1691 and Black and Kraakman, supra n. 12CrossRefGoogle Scholar. Note also that the enactment of extensive minority shareholder protection in the US in 1933/4 follows on the heels of the publication of the famous book by Berle, and Means, , The Modern Corporation and Private Property, (New York, Council for Research in the Social Sciences, Columbia University 1932)Google Scholar, in which they point out the weakness of dispersed small shareholders vis-à-vis company management. Response driven legal evolution has also been observed for the development of corporate law and securities regulations in emerging markets in Asia. See Pistor and Wellons, op. cit. n. 46.

⁸² Pistor, , “Privatization and Corporate Governance in Russia: An Empirical Study” in: McFaul, and Perlmutter, (eds.) Privatization, Conversion and Enterprise Reform in Russia (Boulder, West view Press 1995), pp. 69–84Google Scholar; Pistor, supra n. 35; Coffee, , “Institutional Investors in Transitional Economies: Lessons from the Czech Experience”Google Scholar, in: Frydman et al., supra n. 70; Black, , Kraakman, and Tarassova, , Russian Privatization and Corporate Governance: What Went Wrong? (Stanford, John M. Olin Program in Law and Economics 1999)Google Scholar. Among economists, there was little interest in the extent and effectiveness of the law at the outset of reform. In their attempt to explain the extremely low valuation of Russian companies in privatization, Boycko et al., do not even discuss the possible role of the weak legal environment: Boycko, et al. , “Privatizing Russia”, Brookings Papers for Economic Activity (1993) 139–180Google Scholar. But see Sachs in his comments to that paper, ibid., p. 181 with reference to Pistor (1995, ibid.).

⁸³ Pistor, supra n. 17.

⁸⁴ Bebchuk (1999), supra n. 17.

⁸⁵ La Porta, et al., supra n. 42.

⁸⁶ Bebchuck (1999), supra n. 17

⁸⁷ Ibid.

⁸⁸ Frydman, , Pistor, and Rapaczynski, , “Investing in Insider-Dominated Firms: A Study of Russian Voucher Privatization Funds”, in: Frydman, et al. (eds.), supra n. 70, pp. 187–241Google Scholar. Filatov, et al. , Insider Control and Managerial Entrenchment in Privatised Firms in Russia: Analysis and Policy Implications (Nottingham, University of Nottingham Business School 1999).Google Scholar

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