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Cracking the Emerging Markets Enigma$

G. Andrew Karolyi

Print publication date: 2015

Print ISBN-13: 9780199336623

Published to Oxford Scholarship Online: June 2015

DOI: 10.1093/acprof:oso/9780199336623.001.0001

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(p.231) Appendix E Measures of Limits to Legal Protections

(p.231) Appendix E Measures of Limits to Legal Protections

Source:
Cracking the Emerging Markets Enigma
Publisher:
Oxford University Press

Category

Variable

Definition and Source

Legal Protection of Minority Rights

Antidirector Rights Index (LLSV, La Porta, Lopez-de-Silanes, Shleifer, and Vishny 1998; DLLS, Djankov, La Porta, Lopez-de-Silanes, and Shleifer 2008)

The index (0 to 5) of antidirector rights is formed by adding one point when the country allows shareholders to mail their proxy vote, one if shareholders are not required to deposit their shares prior to a general meeting, one if cumulative voting or proportional representation for minorities on the board of directors is allowed, one if oppressed minorities have mechanisms in place, one if the minimum percentage of share capital needed for a shareholder to call for an extraordinary meeting exceeds 10%, and one when shareholders have preemptive rights that can only be waived by a shareholders’ meeting. The original source is La Porta et al., “Law and Finance.” I use the revised version in Djankov et al., “The Law and Economics of Self-Dealing.”

Judicial Efficiency Index (La Porta et al., 1998)

An index (0 to 10, with low scores representing lower efficiency) of the efficiency and integrity of the legal environment as it affects business particularly foreign firms produced by the country risk rating agency International Country Risk (ICR). Source: La Porta et al., “Law and Finance.”

Rule of Law (La Porta et al., 1998)

An index (0 to 6, with low scores for less tradition for law and order) assessing the law and order tradition in the country produced by the country risk rating agency International Country Risk (ICR).Source: La Porta et al., “Law and Finance.”

Creditor Rights (La Porta et al., 1998)

A creditor rights index (0 to 4, with high scores for good protection) considering whether there are no automatic stays on assets, secured creditors get paid first, there exist restrictions for going into reorganization, and management does not stay at the firm during reorganization.Source: La Porta et al., “Law and Finance.”

Formalism Index (Djankov et al., 2003)

Using data on exact procedures used by litigants and courts to evict a tenant for nonpayment of rent and to collect a bounced check, DLLS construct an index of procedural formalism of dispute resolution for each country. The data are combined into a unitless scale from 0 to 7, where higher procedural formalism is associated with higher expected duration of judicial proceedings, more corruption, less consistency, less honesty, less fairness in decisions, and inferior access to justice. Source: Djankov et al., “Courts.”

AntiSelf-Dealing Index (Djankov et al., 2008)

The index is computed for 72 countries based on legal rules prevailing in 2003 and focuses on private enforcement mechanisms such as disclosure, approval, and litigation governing a specific self-dealing transaction by corporate insiders. In Djankov et al., “The Law and Economics of Self-Dealing,” anti self-dealing (0 to 1 scale, bad to good) measures extent of private enforcement mechanisms such as disclosure, approval and litigation on dealings by insiders.

Public Enforcement Index (Djankov et al., 2008)

Public enforcement deals with the criminal sanctions when a self-dealing transaction (see above for definition) that has been approved is in violation of the law. In Djankov, La Porta, Lopez-de-Silanes, and Shleifer, “The Law and Economics of Self-Dealing,” where enforcement (0 to 1 scale, good to bad) indicates more stringent fines, prison terms for self-dealing transactions.

Supervisory Powers (La Porta, Lopez-de-Silanes, and Shleifer, 2006)

The index of characteristics of the Supervisor of financial markets equals the arithmetic mean of (1) appointment, (2) tenure, and (3) focus. Higher scores indicate weaker powers. Appointment equals one if a majority of the members of the Supervisor are unilaterally appointed by the executive branch of government; it equals zero otherwise. Tenure equals one if members of the supervisor cannot be dismissed at the will of the appointing authority; it equals zero otherwise. Focus equals one if separate government agencies or official authorities are in charge of supervising commercial banks and stock exchanges; it equals zero otherwise.Source: La Porta, Lopez-De-Silanes, and Shleifer, “What Works in Securities Laws?”

World Bank Getting Credit Indicator

Legal Rights Index

An index (0 to 10, high scores with better bankruptcy laws to expand access to credit) reflects legal rights of borrowers and lenders, and measures the degree to which collateral and bankruptcy laws facilitate lending. Collateral and insolvency laws with support of a survey on secured transactions laws.Source: http://www.doingbusiness.org/methodology/getting-credit.

Credit Information Index

An index (0 to 6, higher values indicate more credit info) on information available from a public registry or private bureaus to facilitate lending decisions.Source: http://www.doingbusiness.org/methodology/getting-credit.

Public credit registry coverage (% adults)

A number as % of adult population of a registry managed by central bank or superintendent of banks collecting info on the creditworthiness of borrowers in the financial system made available to financial institutions.Source: http://www.doingbusiness.org/methodology/getting-credit.

Private bureau coverage (% adults)

A number as % of adult population of a database managed by a private firm or nonprofit organization collecting info on the creditworthiness of borrowers in the financial system made available to financial institutions.Source: World Bank Doing Business Indicators, http://www.doingbusiness.org/methodology/getting-credit.

World Bank Protecting Investors Indicator

Disclosure Index

An index (0 to 10, with higher values indicating greater disclosure) of extent of disclosure about potential transactions by managers or directors that misuse corporate assets for personal gain.Source: World Bank Doing Business Indicators, http://www.doingbusiness.org/methodology/protecting-investors.

Director Liability Index

An index (0 to 10, with higher values indicating greater liability of directors) of plaintiffs’ abilities to hold a director liable for damages to the company if he influenced approval of a transaction or was negligent.Source: World Bank Doing Business Indicators, http://www.doingbusiness.org/methodology/protecting-investors.

Shareholder Suits Index

An index (0 to 10, with higher values indicating greater powers of shareholders to challenge a transaction) of ease of shareholder suits in terms of range of documents available to plaintiff from defendant and witnesses during trial, ability to engage in direct examination during trial and other related measures.Source: World Bank Doing Business Indicators, http://www.doingbusiness.org/methodology/protecting-investors.

Investor Protection Index

A composite index (0 to 10, with higher values indicating better investor protection) of the extent of disclosure requirements, the extent of director liability and the ease of shareholder suits.Source: World Bank Doing Business Indicators, http://www.doingbusiness.org/methodology/protecting-investors.

World Bank Enforcing Contracts Indicator

Procedures (number)

A count of the number of procedures mandated by law that demand interaction between parties and/or judge and/or court officer.Source: World Bank Doing Business Indicators, http://www.doingbusiness.org/data/exploretopics/enforcing-contracts.

Time (days)

Cost (% of debt)

(p.232) (p.233) (p.234)