provides a fertile ground for legal innovation. Unless a legal system proves capable of responding to the new challenges arising from legal innovation, this strategy may be self- defeating. The following propositions are derived from the above analysis. First, the more mandatory is a corporate law, the less legal innovation will take place. Second, the more enabling is a corporate law, the more legal innovation will take place. Third, the more enabling is a corporate law, the greater is the need for institutional innovation, in particular for new law enforcement agents We recognize that there may be different factors influencing the innovative capacity of legal systems. The constitutional system, including the allocation of legislative powers and the ease with which rulemaking powers can be delegated to other agents, e.g egulators, may influence the responsiveness and innovativeness of legal systems Moreover, political factors may hinder or support legal reform in corporate law Colombia's problems in maintaining political stability and fighting drug trade may have prevented a more proactive stand on issues related to matters of corporate law. We do not address these broad political and constitutional factors because they are beyond the scope of this research project. However, we do include a countrys history in developing its formal legal order into our analysis. Berkowitz et al. (2003)suggest that countries that have imported their formal legal order, rather than having developed it internally may suffer from the transplant effect. These authors show that legal transplants have weaker legal institutions than origin countries. In explaining their findings, they suggest that the ransplant countries may lack a demand for the legal order that is superimposed on them therefore, their governments may decide not to invest in institutions necessary to implement this order. Hence, we assert a fourth proposition that legal transplant countries 1212 provides a fertile ground for legal innovation. Unless a legal system proves capable of responding to the new challenges arising from legal innovation, this strategy may be self￾defeating. The following propositions are derived from the above analysis. First, the more mandatory is a corporate law, the less legal innovation will take place. Second, the more enabling is a corporate law, the more legal innovation will take place. Third, the more enabling is a corporate law, the greater is the need for institutional innovation, in particular for new law enforcement agents. We recognize that there may be different factors influencing the innovative capacity of legal systems. The constitutional system, including the allocation of legislative powers and the ease with which rulemaking powers can be delegated to other agents, e.g., regulators, may influence the responsiveness and innovativeness of legal systems. Moreover, political factors may hinder or support legal reform in corporate law. Colombia’s problems in maintaining political stability and fighting drug trade may have prevented a more proactive stand on issues related to matters of corporate law. We do not address these broad political and constitutional factors because they are beyond the scope of this research project. However, we do include a country’s history in developing its formal legal order into our analysis. Berkowitz et al. (2003) suggest that countries that have imported their formal legal order, rather than having developed it internally may suffer from the transplant effect. These authors show that legal transplants have weaker legal institutions than origin countries. In explaining their findings, they suggest that the transplant countries may lack a demand for the legal order that is superimposed on them; therefore, their governments may decide not to invest in institutions necessary to implement this order. Hence, we assert a fourth proposition that legal transplant countries