Investor protection and stock market development. Empirical approach on the European Union case

• Author: Marius Cristian Milos, Laura Raisa Milos
• Pages: 113-125

Investor protection and stock market development.

Empirical approach on the European Union case

Lecturer Marius Cristian MILOŞ1

Lecturer Laura Raisa MILOŞ2

Abstract

A fund amental objective of stock ma rket regulation is investor protectio n, which

influences the stability and the degree of development of capital markets. We use eleven

years (2006-2016) of panel data from the World Bank, o n the evolution of minority

shareholders' protection. This paper aims at understanding the connection between

regulation and the development of capital markets, both for developed and emerging

European Union countries. The results are co nsistent with some of the results from

empirical research in law, demonstrating a positive link between investor protection and

stock market development during the analyzed period, a fter controlling for other drivers of

stock market development, such as GDP growth and level of taxation. The results outline

the importance of stock market regulation, making clear that minority shareholder

regulation and its enforcement should be further improved in the European Union member

states.

Keywords: minority shareholder protection; regulation; stock market

development; European Union; GMM system

JEL Classification: K20, K22, K42

1. Introduction

The enhancement of the protection of minority shareholders, alongside

with the improvement of corporate governance of listed companies represent one

of the premises of development of domestic stock markets. Investor protection is

one of the main principles that is guided by the stock market regulation and it

presumes mainly the existence of the following rights: economic rights, control

rights, information rights, litigation rights and equality rights.

The position of a minority shareholder in a company entails a number of

risks, given the individual interest of the controlling shareholders in obtaining the

highest personal benefits and not respecting the affectio societatis principle, acting

for the good or the common interest of the company. In some countries, weak

investor protection regulations or poor enforcement are often mentioned in the

1 Marius Cristian Miloş - PhD Cand idate in Law, Faculty of Law, West University o f Timisoara;

Faculty of Economics and Business Administration, West University of Timisoara, Romania,

marius.milos@e-uvt.ro.

2 Laura Raisa Miloş - Faculty of Economics and Business Administration, West University of

Timisoara, Romania, laura.milos@e-uvt.ro.