shares, which will make higher-quality issuers interested in issuing shares. This will further reduce the ex ante likelihood of expropriation of investors' funds and further raise stock prices, until a new equilibrium is reached with higher share prices and a lower cost of capital To be sure, in a world of perfect contracting, without informational asymmetries, contracting costs, or naive managers or investors, appropriate protections for minority shareholders would emerge by contract, without the need for government fiat. In such an ideal world, marked by extensive disclosure and populated by savvy investors and issuers, corporate planners would have incentives to offer optimal investor protection through their charters. 2 Sophisticated market intermediaries, such as investment banks, accounting firms, and law firms would advise issuers on what disclosures and contractual protections to offer and would bond the reliability of the issuer's disclosures. After shares were issued, the same efficient capital market--together with the product market and the market for corporate control -would police company managements. As a consequence, corporate law could be substantially enabling, even if insiders dominated public companies This description points to a second, more general reason why efficiency concerns favor a protective corporate law in emerging economies. The enabling model and its underlying ptions about capital markets have both strengths and weaknesses in developed countries. But the assumptions that support the enabling model are clearly inapposite in emerging economies, where informational asymmetries are severe, markets are far less efficient, contracting costs are high because standard practices have not yet developed, enforcement of contracts is problematic because of weak courts, market participants are less experienced reputable intermediaries are unavailable or prohibitively expensive, and the economy itself is likely to be in flux In recently privatized economies such as Russia, the contractarian base for the enablin model fails for a third reason: the initial structure of relationships among company participants 2 See generally Michael Jensen William Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3J. Fin. Econ. 305, 312-33(1976)(arguing that entrepreneurs who sell equity bear the anticipated agency costs of equity) For an account of the contribution of such informational intermediaries to the efficiency of merican capital markets, see Ronald J. Gilson Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 Va L.Rev.549,613-21(1984) 2The most eloquent American proponents of the enabling model are Frank H. Easterbrook Daniel R Fischel, The Economic Structure of Corporate Law 1-39(1991); and Roberta Romano, The Genius of American Corporate Law 86-91(1993). For efforts to develop the limits of the enabling approach, see Lucian A. Bebchuk, Limiting Contractual Freedom in Corporate Law: The Desirable Constraints on Charter Amendments, 102 Harv. L Rev. 1820, 1835-60(1989) hereinafter Bebchuk, Limiting Contractual Freedom/; Melvin A Eisenberg, The Structure of Corporation Law, 89 Colum. L. Rev. 1461, 1471-515(1989); and Jeffrey N. Gordon, The Mandatory Structure of Corporate Law, 89 Colum. L Rev. 1549, 1554-85(1989) Thereinafter Gordon, Mandatory Structure]. We do not enter here the debate on the proper limits on the enabling approach in a developed economy21 See generally Michael Jensen & William Meckling, Theory of the Firm: Managerial Behavior, Agency Costs and Ownership Structure, 3 J. Fin. Econ. 305, 312-33 (1976) (arguing that entrepreneurs who sell equity bear the anticipated agency costs of equity). 22 For an account of the contribution of such informational intermediaries to the efficiency of American capital markets, see Ronald J. Gilson & Reinier H. Kraakman, The Mechanisms of Market Efficiency, 70 Va. L. Rev. 549, 613-21 (1984). 23 The most eloquent American proponents of the enabling model are Frank H. Easterbrook & Daniel R. Fischel, The Economic Structure of Corporate Law 1-39 (1991); and Roberta Romano, The Genius of American Corporate Law 86-91 (1993). For efforts to develop the limits of the enabling approach, see Lucian A. Bebchuk, Limiting Contractual Freedom in Corporate Law: The Desirable Constraints on Charter Amendments, 102 Harv. L. Rev. 1820, 1835-60 (1989) [hereinafter Bebchuk, Limiting Contractual Freedom]; Melvin A. Eisenberg, The Structure of Corporation Law, 89 Colum. L. Rev. 1461, 1471-515 (1989); and Jeffrey N. Gordon, The Mandatory Structure of Corporate Law, 89 Colum. L. Rev. 1549, 1554-85 (1989) [hereinafter Gordon, Mandatory Structure]. We do not enter here the debate on the proper limits on the enabling approach in a developed economy. 11 shares, which will make higher-quality issuers interested in issuing shares. This will further reduce the ex ante likelihood of expropriation of investors' funds and further raise stock prices, until a new equilibrium is reached with higher share prices and a lower cost of capital. To be sure, in a world of perfect contracting, without informational asymmetries, contracting costs, or naive managers or investors, appropriate protections for minority shareholders would emerge by contract, without the need for government fiat. In such an ideal world, marked by extensive disclosure and populated by savvy investors and issuers, corporate planners would have incentives to offer optimal investor protection through their charters.21 Sophisticated market intermediaries, such as investment banks, accounting firms, and law firms, would advise issuers on what disclosures and contractual protections to offer and would bond the reliability of the issuer's disclosures.22 After shares were issued, the same efficient capital market -- together with the product market and the market for corporate control -- would police company managements. As a consequence, corporate law could be substantially "enabling," even if insiders dominated public companies. This description points to a second, more general reason why efficiency concerns favor a protective corporate law in emerging economies. The enabling model and its underlying assumptions about capital markets have both strengths and weaknesses in developed countries.23 But the assumptions that support the enabling model are clearly inapposite in emerging economies, where informational asymmetries are severe, markets are far less efficient, contracting costs are high because standard practices have not yet developed, enforcement of contracts is problematic because of weak courts, market participants are less experienced, reputable intermediaries are unavailable or prohibitively expensive, and the economy itself is likely to be in flux. In recently privatized economies such as Russia, the contractarian base for the enabling model fails for a third reason: the initial structure of relationships among company participants