The core institutions that support strong securities markets

A strong securities market rests on a complex network of supporting institutions that ensure that minority shareholders (i) receive good information about the value of a company's business, and (ii) can have confidence that a company's managers and controlling shareholders won't cheat them out of most or all of the value of their investment. A country whose laws and related institutions fail on either count cannot develop a strong stock market, forcing firms to rely on internal financing or bank financing-both of which have important shortcomings. This Article explains why these two investor protection issues are critical, related, and hard to solve, and discusses which laws and institutions are most important for each. This paper is a shorter version of The Legal and Industrial Preconditions for Strong Securities Markets, 48 UCLA L. Rev. (forthcoming 2000), available from Social Science Research Network at <http://papers.ssm.com/paper.taf?abstract_id = 182169>.