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

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

A fundamental objective of stock market regulation is investor protection, 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, on the evolution of minority shareholders' protection. This paper aims at understanding the connection between regulation and the development of capital markets, both for... (see full summary)

 
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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.

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