Law and Finance “at the Origin”

Abstract

What are the key determinants of financial development and growth? A large literature debates the relative importance of countries' legal and political environment. In this paper, I present evidence from ancient Rome, where an early form of shareholder company, the societas publicanorum, developed. I show that the societas publicanorum flourished in a legally underdeveloped but politically supportive environment (Roman Republic) and disappeared when Roman law reached its height of legal sophistication but the political environment grew less supportive (Roman Empire). In the Roman case, legal development appears to have mattered little as long as the law as practiced was flexible and adapted to economic needs. The “law as practiced,” in turn, reflected prevalent political interests. After discussing parallels in more recent history, I provide a brief overview of the literature on law and finance and on politics and finance. The historical evidence suggests that legal systems may be less of a technological constraint for growth than previously thought—at least “at the origin.” (JEL D72, K10, N23, N43)

Inheritance Law and Investment in Family Firms

“…Therefore, 1− φ measures the minimum fraction of the firm's cash flow that the law guarantees to be disgorged in favor of investors: accordingly, it will be referred to as the degree of "investor protection" afforded by the law. The assumption that the legal degree of investor protection affects external finance to firms agrees with a large body of evidence (see Beck andLevine, 2005, andMalmendier, 2007, for two recent surveys ).…”

How Rome enabled impersonal markets

“…On the other hand, big tax farming companies enjoyed special rules: e.g., death of a partner or litigation between partners did not dissolve the company (Crook 1967:234). It has even been claimed that there were proper companies, at least for tax farming and shipping, and that they were functionally similar to the European joint-stock companies of the sixteenth and seventeenth centuries, with their own legal identity and continuity after the death of their investors, with separation of ownership and control and with shares being traded at variable prices (Malmendier 2009). 36 However, substantial doubts remain about such companies concerning their use of shares and their legal personality (e.g., Crook 1967:234-35).…”

“…Moreover, Plutarch wrote almost 200 years later and might have been prone to exaggeration (see, for another likely example, Ellickson, forthcoming). 37 Compare Malmendier (2009), who omits any consideration of the difficulties faced by companies created on a purely contractual basis and emphasizes political considerations in the demise of the large societas publicanorum in the Roman Empire. They ultimately disappeared because the state changed the way it collected taxes and produced public services, moving away from pure tax farming towards more sophisticated forms of subcontracting, with greater control of subcontractors, sharing of revenues and development of the state's bureaucracy (Gibbs 2013).…”

Competition Policy and Productivity Growth: An Empirical Assessment

“…Hence, we expect positive complementarities between several indicators of the quality of the judiciary system and competition policy. For a different view, see Malmendier (2009), who critically discusses the literature on the nexus between law, finance, and growth. The debate is still unsettled, and it is not the aim of this paper to enter it.…”