International and Comparative Law Quarterly

Article

THE EVOLUTION OF SHAREHOLDER AND CREDITOR PROTECTION IN AUSTRALIA: AN INTERNATIONAL COMPARISON

Helen Andersona1, Michelle Welsha2, Ian Ramsaya3 and Peter Gahana4

a1 Centre for Corporate Law and Securities Regulation, Melbourne Law School, University of Melbourne and Senior Research Fellow, Department of Business Law and Taxation, Monash University

a2 Workplace and Corporate Law Research Group, Department of Business Law and Taxation, Monash University

a3 Centre for Corporate Law and Securities Regulation, Melbourne Law School, University of Melbourne

a4 Department of Management and Marketing, Melbourne University.

Abstract

This article is part of a larger international investigation of the effects of a country's legal origins on the style of business regulation. We employ an innovative ‘leximetric’ methodology to numerically code the protective strength of Australian corporate law for both shareholder and creditor protection for the period 1970 to 2010. This leximetric methodology has been used in a prominent international debate concerning the development of legal rules and the effects of different styles of regulation on a range of economic outcomes—the legal origins debate. Drawing on similar data compiled by Armour, Deakin, Lele and Siems in five other countries (France, Germany, India, the UK and the US) for the period 1970 to 2005, we compare changes in the level of protection afforded to Australian shareholders and creditors with developments in other countries. Our analysis finds that in Australia there was a sustained upward trend in shareholder protection, but not in the case of creditor protection. Compared to the five other countries, the level of protection afforded to shareholders under Australian law was relatively high, and this was the case for the level of protection afforded to creditors as well. We also examine the extent of convergence and divergence in shareholder and creditor protection among the countries in the study. We find persistent divergence in shareholder protection, with the extent of divergence in 2005 similar to that in 1970. For creditor protection, we find increasing divergence among the countries over the period of study. Our findings are not supportive of legal origins theory.

Footnotes

The authors acknowledge the financial support of the Australian Research Council (Discovery Project Grant No DP1095060) to undertake the research upon which this article is based.