although data availability implies that this is the least difficult case to establish; rather, we include indicators for the flexibility of corporate law and institutional change Hayek(1973)emphasizes the importance of legal evolution and change and points It that judge made law is evolutionary by nature. Statutory law enacted by legislatures may be swifter at times and may serve to correct judge-made law, but statutory law may also be used to restrict innovation and to infringe on individual liberties Several authors argue that the common law is efficient, because the process of lawmaking by judges on a case by case basis lends itself to efficient rule selection(Priest, 1977 and Rubin, 1977) However, a potential selection bias affects litigation as Bailey and Rubin(1994)argue Finally, a comparative legal analysis emphasizes the differences between code and case law in bringing about legal change(Merryman, 1985, Merryman, 1996 and Zweigert and Kotz, 1998 ). Building on this literature, Beck et al. (2002)use case law, defined as a dummy variable that indicates whether judicial decisions are a source of law, in addition to requirements that statutory law rather than principles of equity are a basis for court ulings as proxies for the adaptability of legal systems. Our approach differs in several respects. The focus of our analysis is on the law governing the corporate enterprise Corporate law has been codified in all major jurisdictions, including the common law families, since the early 19 century. Therefore, we treat statutory law as an important source of information for the innovative capacity of legal systems. In particular, we use the rate of statutory legal change since the first enactment of a formal corporate law as a proxy for legal innovation 88 although data availability implies that this is the least difficult case to establish; rather, we include indicators for the flexibility of corporate law and institutional change respectively. Hayek (1973) emphasizes the importance of legal evolution and change and points out that judge made law is evolutionary by nature. Statutory law enacted by legislatures may be swifter at times and may serve to correct judge-made law, but statutory law may also be used to restrict innovation and to infringe on individual liberties. Several authors argue that the common law is efficient, because the process of lawmaking by judges on a case by case basis lends itself to efficient rule selection (Priest, 1977 and Rubin, 1977). However, a potential selection bias affects litigation as Bailey and Rubin (1994) argue. Finally, a comparative legal analysis emphasizes the differences between code and case law in bringing about legal change (Merryman, 1985, Merryman, 1996 and Zweigert and Kötz, 1998). Building on this literature, Beck et al. (2002) use case law, defined as a dummy variable that indicates whether judicial decisions are a source of law, in addition to requirements that statutory law rather than principles of equity are a basis for court rulings as proxies for the adaptability of legal systems. Our approach differs in several respects. The focus of our analysis is on the law governing the corporate enterprise. Corporate law has been codified in all major jurisdictions, including the common law families, since the early 19th century. Therefore, we treat statutory law as an important source of information for the innovative capacity of legal systems. In particular, we use the rate of statutory legal change since the first enactment of a formal corporate law as a proxy for legal innovation