An End to Consensus? The (Non) Impact of Legal Reforms on Financial Development

We use recently created longitudinal datasets measuring legal change over time to test whether the strengthening of shareholder and creditor rights leads to greater financial development. The hypothesis that law matters to financial development is rejected, both for a sample of 5 countries (France, Germany, India, UK and US) over 36 years (1970-2005) and for an extended sample of 25 developing, developed and transition systems over 11 years (1995-2005). We consider a number of reasons for the non-impact of legal change, including the inappropriateness of certain legal transplants and the failure of legal reforms to bed down in practice.