Legal Institution, And Financial Development-A Survey Of The "Law And Finance" Theory And Empirical Study Regarding

In the view of the theory of financial development theory, the long run economic growth depends on the degree of development and depth of financial system in a country's economy. A country or a region's financial system consists mainly of financial intermediates (bank and other depositing financial sectors) and financial markets (stock market and debt market). Considering factors that affect the development of financial system, the law and finance theory argue that, the legal institution and the efficiency of law enforcement play an important rule. Investor rights protection differs among countries with different legal system, and then the degree of investor protection determines the size of financial intermediate and financial market.In the first part of my paper, I introduce the law and finance theory with detailed summarization of its research methods and fruits. In the paper I also build two simple models to explain the mechanism of how the law institution affects the growth of financial intermediate and market, and get some meaning results which are verified in the forth empirical test part. Since the eighties in last century, the financial system in our country, either financial intermediate or financial market, has experienced a very high growth. At meanwhile the legal system of our country as well as the financial system gradually be improved and became more advanced. A critical question is: does the law matter and what rule does the law play in the process of our financial development in our country? Domestic and foreign Scholars have discussed much, but there is not a consensus. The disputation can be found in the third part.Based on the study in LLSV(2002), starting with historical dynamic evolvement of China investor legal protection, my issue is that the strong "adaptability" of our country legal institution, which continuously is revised to adapt the needs of economic development, prompt the financial system development. Finally, the empirical study from the listed companies support our conclusion: after controlled the cyclical volatility of equity market and the exclusive feature of company, the better investor legal protection enhances the corporate value, so prompt the financial market development.