LEGAL ORIGINS.POLITICS. AND MODERN STOCK MARKETS Mark J.Roe even in the world's richer nations.The main m ans are thoughi to lie in how investo suppo Mod eolities is an alte anation for and the dic financial markets'str ngth ell and tie closely to postwar dive ergences in politics and yeery core cit .ehile no core collapsed under the catastrophe. The interests and ideologies that differences in politics and tasks made one collection of the wo rld's richer natic INTRODUCTION Do legal origins-common law vs.civil law-largely determine whether capital markets develop strongly?Many finance economists have concluded,in an explosion of influential articles in the past dec- 'David Berg Professor of Law,Harvard Law School.Thanks for comments and,in four cz,Marcelo Barb osa,Thorsten ell,Mam in Ge Pete itch rta,Karl Lins,Florencio Lopez-de-Silanes amara Bertrand du rais,Dennis Muelle ohn Pottow,M Bryan Shinn,Andrei Shleifer,Holger Spamann,Lynn Stout,Guhan Subramanian,Marcelo Trin- e,Detlev Vagts,Agata Waclawik,Luigi Zingales,and those workshops at the Columbi vn, H rd,IBMEC business schools,and at the World Bank.Thanks for research support go to Harvard Law School's John M.Olin Center for Law,Economics,and Business. 462LEGAL ORIGINS, POLITICS, AND MODERN STOCK MARKETS Mark J. Roe* Legal origin - civil vs. common law - is said in much modern economic work to determine the strength of financial markets and the structure of corporate ownership, even in the world's richer nations. The main means are thought to lie in how investor protection and property protection connect to civil and common law legal origin. But, I show here, although stockholder protection, property rights, and their supporting legal institutions are quite important, legal origin is not their foundation. Modern politics is an alternative explanation for divergent ownership structures and the differing depths of securities markets in the world's richer nations. Some legislatures respect property and stock markets, instructing their regulators to promote financial markets; some do not. Brute facts of the twentieth century - the total devastation of many key nations, wrecking many of their prior institutions - predict modern postwar financial markets' strength well and tie closely to postwar divergences in politics and policies in the world's richest nations. Nearly every core civil law nation suffered military invasion and occupation in the twentieth century - the kinds of systemic shocks that destroy even strong institutions - while no core common law nation collapsed under that kind of catastrophe. The interests and ideologies that thereafter dominated in the world's richest nations and those nations' basic economic tasks (such as postwar reconstruction for many) varied over the last half century, and these differences in politics and tasks made one collection of the world's richer nations amenable to stock markets and another indifferent or antagonistic. These political economy ideas are better positioned than legal origin concepts to explain the differing importance of financial markets in the wealthy West. INTRODUCTION Do legal origins - common law vs. civil law - largely determine whether capital markets develop strongly? Many finance economists have concluded, in an explosion of influential articles in the past dec- * David Berg Professor of Law, Harvard Law School. Thanks for comments and, in four cases, research assistance on the data go to Michael Abramowicz, Marcelo Barbosa, Thorsten Beck, Robert Clark, John Coates, Christine Desan, Simeon Djankov, Charles Donahue, Antonio Duarte, Mel Eisenberg, Allen Ferrell, Martin Gelter, Patrick Glenn, Peter Gourevitch, Claudio Haddad, Peter H6gfeldt, Howell Jackson, Rafael La Porta, Karl Lins, Florencio Lopez-de-Silanes, Tamara Lothian, Bertrand du Marais, Dennis Mueller, Richard Pierce, John Pottow, Manoj Ramachandran, Mark Ramseyer, Stefano Rossi, Alvaro Santos, Frederick Schauer, Wendy Sheu, Bryan Shinn, Andrei Shleifer, H61ger Spamann, Lynn Stout, Guhan Subramanian, Marcelo Trin￾dade, Detlev Vagts, Agata Waclawik, Luigi Zingales, and those at workshops at the Columbia, Dalhousie, Duke, George Washington, Georgetown, Harvard, NYU, Pennsylvania, Sao Paulo, and Vanderbilt law schools, at the Amsterdam, Copenhagen, Harvard, IBMEC, and Stockholm business schools, and at the World Bank. Thanks for research support go to Harvard Law School's John M. Olin Center for Law, Economics, and Business