ABSTRACT
THE “LAW AND FINANCE” APPROACH, RECENTLY advocated by La Porta et al. (1998, 2000), emphasizes the important role of laws and institutions protecting investors for the development of a country. These authors argue that a firm’s ability to raise external capital and grow is limited by the extent to which control can be effectively separated from ownership without increasing the risk that investors are expropriated by management. Better legal protection for investors reduces the risk of expropriation, allows more separation between ownership and control, and increases growth.
