Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.

Using a sample of 49 countries, we show that countries with poorer investor protections, measured by both the character of legal rules and the quality of law enforcement, have smaller and narrower capital markets. These findings apply to both equity and debt markets. In particular, French civil law countries have both the weakest investor protections and the least developed capital markets, especially as compared to common law countries.

In the Anglo-American constitutional tradition, judicial checks and balances are often seen as crucial guarantees of freedom. Hayek distinguishes two ways in which the judiciary provides such checks and balances: judicial independence and constitutional review. We create a new database of constitutional rules in 71 countries that reflect these provisions. We find strong support for the proposition that both judicial independence and constitutional review are associated with greater freedom. Consistent with theory, judicial independence accounts for some of the positive effect of common-law legal origin on measures of economic freedom. The results point to significant benefits of the Anglo-American system of government for freedom. This paper is a radical revision of an earlier paper by the same authors, “The Guarantees

This paper examines legal rules covering protection of corporate shareholders and creditors, the origin of these rules, and the quality of their enforcement in 49 countries. The results show that common‐law countries generally have the strongest, and frenchcivillaw countries the weakest, legal protections of investors, with German‐and scandinavin‐civil‐law countries located in the middle. We also find that concentration of ownership of shares in the largest public companies is negativelyrelated to investor protections, consistent with the hypothesis that small, diversified share‐holders are unlikely to be important in countries that fail to protect their rights.