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The failings of legal centralism for helping stock markets in transition

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  • Edward Stringham
  • Peter Boettke

Abstract

After Czech voucher privatization many companies simply ignored the interests of their shareholders. The government has since increased the amount of regulation, but they have failed to establish significant investor confidence. This article offers some explanations of why their legal centric approach remains unlikely to create good corporate governance. Mandating that companies maximize shareholder value is easier said than done because it requires government to assess whether companies are making optimal business decisions. In former communist countries especially, government officials are ill suited to make such judgments because they lack the knowledge of how businesses should be properly run. Increased bureaucratic oversight in the Czech Republic has simply burdened markets without any noticeable positive results. This article discusses how good corporate governance can only be a byproduct of markets where managers compete for investors rather than something that can be created by law.

Suggested Citation

  • Edward Stringham & Peter Boettke, 2006. "The failings of legal centralism for helping stock markets in transition," Politická ekonomie, Prague University of Economics and Business, vol. 2006(1), pages 22-34.
    • Handle: RePEc:prg:jnlpol:v:2006:y:2006:i:1:id:543:p:22-34
    DOI: 10.18267/j.polek.543
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    Cited by:

    1. Stringham, Edward Peter, 2011. "Embracing morals in economics: The role of internal moral constraints in a market economy," Journal of Economic Behavior & Organization, Elsevier, vol. 78(1-2), pages 98-109, April.

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    More about this item

    Keywords

    regulation; corporate governance; Czech stock market transition; legal centralism;
    All these keywords.

    JEL classification:

    • G1 - Financial Economics - - General Financial Markets
    • K2 - Law and Economics - - Regulation and Business Law
    • P2 - Political Economy and Comparative Economic Systems - - Socialist and Transition Economies

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