Meerovitch, Vladimir
(2014)
Investor protection and equity markets: an evaluation of private enforcement of related party transactions rules in Russia.
PhD thesis, London School of Economics and Political Science.
Abstract
The aim of my thesis is to investigate the relationship between legal protections of minority shareholders – ‘on the books’ and ‘in action’ – and the development of equity markets. In this regard, there is a general consensus that Russian legal measures adopted to protect minority shareholders are strong. The failure of the judiciary to enforce these measures is the principal focus of the academic criticism and has been frequently cited to explain the underdevelopment of the Russian equity market. Notably, the criticism of the judiciary persists despite the market’s marked improvements over the last decade. And yet there has been little empirical analysis of enforcement of the minority shareholder protections by Russian judiciary. This thesis examines private enforcement of corporate law in Russia focusing on the lawsuits to impugn transactions with corporate insiders and the outcomes of those suits. Drawing on a dataset of 170 cases decided by the Federal Arbitrazh Court for the Moscow region in 1999 – 2006, the thesis finds that a large proportion of claimants are unsuccessful. Relying primarily on the law and economics literature and theoretical accounts of the relationship between the law and market development, the thesis develops an analytical framework (for convenience termed judicial bias hypothesis) against which it evaluates case outcomes. The evaluation suggests that in a substantial fraction of the cases the outcomes were justified by legislation or by efficiency, casting doubt over the criticisms of Russian judiciary. While cautious in drawing causal links between the enforcement and markets, the thesis suggests that marginalising legal institutions’ role in Russia might be premature. Their role in fostering the market might be greater than anticipated particularly in incentivising disclosure if not in deterring overreaching.
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