England, and the United States. The six transplant countries are Spain, Chile and Colombia belonging to French civil law, Japan belonging to the German civil law, and Israel and Malaysia belonging to the common law families We find substantial differences in the capacity of legal systems to innovate along three dimensions, namely, the rate of statutory legal change, the flexibility of corporate law, i.e., enabling vS. mandatory, and the development of new enforcement mechanisms First, our findings suggest that the rate of statutory legal change is substantially higher in origin countries than in transplants. Although common law countries have had a somewhat higher rate of change than civil law countries among the four origin countries, the difference between origins and transplants within each legal family is greater than the differences across legal families. Second, countries with a highly mandatory statutory law exhibit less innovation than countries with a more enabling statutory law. Third, legal institutional innovation, in particular, the creation of new enforcement agents such as regulators, has been higher in countries with a more enabling corporate law than in those with a highly mandatory law Our evidence is drawn from statutory corporate law provisions on issues related to corporate finance. In parallel work, we investigate corporate law more broadly and include the governance structure of the firm as well as the rules governing entry and exist ( Pistor et al., 2002 ). However, it is in corporate finance law where we find both the greatest difference across jurisdictions and the greatest rate of innovation over time In section two. of this paper we explain the meaning of legal innovation and develop a set of propositions to assess the innovative capacity of different legal systems. In 2 Whether the U.S. is a transplant or origin country may be disputed. The U.S. received the common law system by way of transplantation from England. However, since the late 18 century, the legal evolution in 66 England, and the United States.2 The six transplant countries are Spain, Chile and Colombia belonging to French civil law, Japan belonging to the German civil law, and Israel and Malaysia belonging to the common law families. We find substantial differences in the capacity of legal systems to innovate along three dimensions, namely, the rate of statutory legal change, the flexibility of corporate law, i.e., enabling vs. mandatory, and the development of new enforcement mechanisms. First, our findings suggest that the rate of statutory legal change is substantially higher in origin countries than in transplants. Although common law countries have had a somewhat higher rate of change than civil law countries among the four origin countries, the difference between origins and transplants within each legal family is greater than the differences across legal families. Second, countries with a highly mandatory statutory law exhibit less innovation than countries with a more enabling statutory law. Third, legal institutional innovation, in particular, the creation of new enforcement agents such as regulators, has been higher in countries with a more enabling corporate law than in those with a highly mandatory law. Our evidence is drawn from statutory corporate law provisions on issues related to corporate finance. In parallel work, we investigate corporate law more broadly and include the governance structure of the firm as well as the rules governing entry and exist (Pistor et al., 2002). However, it is in corporate finance law where we find both the greatest difference across jurisdictions and the greatest rate of innovation over time. In section two. of this paper we explain the meaning of legal innovation and develop a set of propositions to assess the innovative capacity of different legal systems. In 2 Whether the U.S. is a transplant or origin country may be disputed. The U.S. received the common law system by way of transplantation from England. However, since the late 18th century, the legal evolution in