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so we all know that financial markets and in particular equity markets don't
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develop every way in the world to the same extent we know that the US or the UK have very large equity markets and
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other countries have much smaller equity markets and my research addresses one of
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the reasons why we see those differences in the size and the vibrancy the dynamism of equity markets which is the
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extent to which the interests of minority shareholders are protected the argument is that when you have strong
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protections for the interest of minority shareholders then more people are willing to invest money in the stock
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market and as a result what you get is a larger stock market with more turnover and higher capitalization and more
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dynamism so what we did in this research is we coded the legislation exist in different
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countries since 1970 all the way to the present and we looked for legal provisions that protect the interest of
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minority shareholders and what we found was that at the beginning back in the 1970s the US and the UK and other
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countries that have a common law legal system having placed very strong protections for minority shareholders
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but then beginning the 1990s and especially over the last 15 years countries in Eastern Europe countries in
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Asia even some countries in Africa that used to have very very weak protections of minority shareholders change their
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legislation and they introduced actually quite strong protections and in some cases stronger than those present in the
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United States or the UK so in addition to finding that countries that didn't
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use to have strong legal protections now have them we also found that adopting the legal provisions defending the
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minority shareholders is not enough that you also need to enforce those kinds of
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regulations protecting minority shareholders and that is a very important finding because essentially it
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means that you know a lot of countries out there introduced these reforms for show only for so as window dressing but
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it's also important to follow up with enforcement otherwise you don't get the
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expected results which is you know the growth of stock market capitalization and a more dynamic equity market
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for me the biggest surprise coming out of this research project that was what happened in Eastern Europe and the
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former Soviet republics also including Russia itself because as you know most of these countries became independent in
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the 1990s so they didn't have their own separate corporate legislation and they
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were very aggressive in terms of introducing very advanced laws that protected minority shareholders and my
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assumption going in was that the in these countries actually the effects wouldn't be that great in terms of stock
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market development because I thought they were just adopting these things you know for fun they were just adopting
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these things to tell the IMF that they as they were introduced in reforms they were adding all of these new legal
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provisions just because they failed that it was the right thing to do so I was surprised to see that even within that
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set of countries right we're talking about maybe 20 or 25 countries in Eastern Europe and you know the former
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Soviet republics you observed that the implementation of these laws has resulted in the growth of a stock market
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which is something that I don't think most people would have expected and I certainly was not expecting
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well I think my reach has implications for both practitioners especially investors and for
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policymakers so let's start with investors for investors we all know that the world has become one big marketplace
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and essentially capital is chasing the best returns but obviously you also need to take into consideration the legal
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framework is not the same to invest in the US equity market as it is to invest let's say in the Nigerian equity market
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or in the Chinese equity market and that's for a variety of reasons what my research does is it you know cause the
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attention to the importance of legal institutions because at the end of the day portfolio investors they want to be
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protected they want to be able to sue they want to be able to have legal mechanisms at their disposal if they
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believe that they've been taken for a ride that's the implication for investors I offer them a map and in fact
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anyone can download the data that we have put together painstakingly for more than 70 countries between 1970 and the
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present time and those data are available from my website at the Wharton School now for policymakers I think the
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lesson is also clear which is that it does pay to introduce market-oriented reforms in the form of no legal
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institutions that support economic exchange and support the investment and at the present time as we all know
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governments around the world are competing against one another to attract investment so it is very very important
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for governments to realize that they need to have the right legal framework in place because the ultimately the
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development of their equity markets depends on the extent to which the protections of you know for minority
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investors are in place and also the extent to which they are actually enforced well I think the conventional wisdom is
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that there are safe markets in the world in which it is you know okay to invest and that you're likely not to lose your
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money for some you know strange reason other than that maybe you know the market goes south right meaning that
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it's very difficult for either the government or other interests to expropriate investors right which
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happens in many parts of the world I think that conventional wisdom is largely true that is to say yes you can
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classify countries right according to how easy it is for you to protect your rights as a minority investor what my
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research I think does is it addresses this myth that you know whatever the situation was back 30 years ago
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continues to be the same today that is to say what we observe is that laws and regulations concerning minority
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shareholders change all the time and countries that used to have very low protections do they actually have very
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strong protections in place and so it's very important for investors and for the
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general public i think to understand those legal frameworks because otherwise you could be making big mistakes as to
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exactly how you allocate your investments and let's not forget that most of us have a pension fund right and
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we can make choices about how we allocate you know the money that we have in it let's say between us equities and
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foreign equities and then within foreign equities different parts of the world so
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I think it's really important for us as citizens who have a pension fund to also
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understand these dynamics and how legal institutions effect or potentially can affect that returns to our investments
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what I think is unique about our research years how comprehensive the data are so we have hired more than 50
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experts legal experts lawyers from different countries who speak the language and they read the relevant
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legislation over a period of 45 years since 1970 and they coded all of these different legal provisions so it is the
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detail that we have in our data it is the fact that we've covered nearly 80 countries more than 70 countries over 45
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years that I think is unique about our research and the later can be downloaded for free from my own website within the
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Wharton school's website well now that we have these data on minority shareholder protections around
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the world we are planning to examine what happens after a major financial crisis such as for example the one that
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took place in 2008 as we know there's a lot of restructuring there's many
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marriages and acquisitions or what we want to understand is whether the way in which crises are resolved in which
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assets are restructured is different depending on the strength of different stakeholders in the firm and one very
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important stakeholder of course is minority shareholders and so we are expecting that the ways in which crisis
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unfold and ultimately are resolved are different depending on whether you're
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talking about a country that has very strong protection of minority shareholders versus another in which
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those protections are very weak you