Shareholder protection, income inequality and social health: A proposed research agenda

Abstract

This paper develops a proposed research agenda in order to highlight how corporate governance, accounting and company law are relevant to the consideration of income inequality and wider social health. To illustrate this proposed research agenda, this paper draws on corporate governance research in the law and finance tradition, as well as macro-level studies in accounting concerned with the wider corporate governance context, in order to consider the association between shareholder protection, income inequality and child mortality. Under 5 child mortality is an objective indication of a country’s ability to nurture its children. In an influential body of work, La Porta et al. (1997a, 1997b, 1998, 2008) concluded that a common law legal system which protected the interests of shareholders gave rise to better economic and social outcomes. However, drawing on corporate governance and accounting literature we contend that such a conclusion is flawed. The findings of this paper suggest that common law countries (i.e. those with the greater legal protection for investors) have worse social outcomes in terms of under-5 child mortality.

Notes

1 In fact, La Porta et al. (1996) studied differences in a number of variables between common and civil law countries (see Table 1).

2 In fact, 21 of these countries’ legal systems were based upon French Civil Law (Argentina, Belgium, Brazil, Chile, Columbia, Ecuador, Egypt, France, Greece, Indonesia, Italy, Jordan, Mexico, Netherlands, Peru, Philippines, Portugal, Spain, Turkey, Uruguay and Venezuela), five countries’ legal systems were based on German Civil Law (Austria, Germany, Japan, Korea and Switzerland) while the remaining four countries’ legal systems were based upon Scandinavian Civil Law (Denmark, Finland, Norway and Sweden). However, in the current analysis, all of these civil law countries are combined together into one group for a clearer comparison between the common and civil law traditions.

3 There are a range of different countries within both legal origin groupings drawn from different ends of the epidemiological divide and in different proportions. These differences will be masked by an analysis of mean values; an analysis of medians yielded similar results. Further, the Analysis of Variance (ANOVA) test comparing the means takes account of the volatility of values within a grouping. These tests are included for completeness but other tests allow for these differing proportions.

4 Specifically, we followed the strategy employed in Collison et al. (2007) who identified the 24 wealthiest OECD countries as “Developed”; all other countries were labelled as “Developing” in the current paper.

5 The findings from an analysis of median values for each of the social indicator variables were also calculated and revealed a similar pattern to the results for the means; although some descriptive statistics suggested that the variables might not be normally distributed this did not influence the overall picture to emerge from the data.

6 In fact, countries with a Scandinavian civil law legal origin had the lowest under 5 mortality percentages, countries with a German civil law tradition were next while countries with a French civil law system were ranked third in terms of under 5 mortality figures. All three had means less than the common law countries.

7 The non-parametric Spearman rank correlation analysis was selected because there was some evidence that the variables being examined were not normally distributed. In fact, descriptive statistics revealed that data for one of the social indicators and six of the investor protection variables were positively skewed. In addition, there was some evidence of kurtosis in the data series. However, an analysis of the parametric Pearson correlation coefficients revealed very little difference in the values calculated.

8 http://www.cbr.cam.ac.uk/research/research-projects/completed-projects/law-finance-development/