Content area
Full Text
Firm-level data across 36 countries suggests that shareholder protection laws do mitigate the adverse consequences of banking crises by allowing stock markets to act as an alternative source of financing.
Shareholder protection laws have been praised for their positive impacts on stock market development, liquidity, efficiency of corporate investments, and overall economic growth. These laws help ensure that majority shareholders and management do not expropriate resources from minority shareholders, thus encouraging investment from minority investors and allowing companies to use equity issuance as an alternative source of financing when bank loans are unavailable. Former Federal Reserve Chairman Alan Greenspan also suggested that these laws could have acted as a "spare tire," for Japan and East Asia during the 1997 banking crisis, and could have helped mitigate the severity of its economic and financial consequences. In, "Spare Tire? Stock Markets, Banking Crises, and Economic Recoveries," authors Ross Levine, Chen Lin, and Wensi Xie analyze firm-level data from approximately 3,600 companies in 36 countries between 1990 and 2011 to test...