Legal Origin and Size Effects in European Listed Firms

Per-Olof Bjuggren (Jönköping International Business School)
Andreas Högberg (Jönköping International Business School)

Abstract: This paper investigates the impact of legal tradition and firm size on investment performance for firms in 16 European countries. Europe as a region is of special interest since the legal systems differs widely. Anglo Saxon, German, French as well as Scandinavian variants of legal systems can be found in Europe. Previous studies suggest that minority shareholders enjoy a higher degree of property rights protection in common law (Anglo Saxon) countries compared to civil law (French, German and Scandinavian) countries. The cost of governance as a function of firm size is examined. We also look at expropriation of minority shareholders as a result of large organizations and hierarchies. This study differs from earlier studies by concentrating on the firm size and its effects on investment performance and by connecting it to the legal origin in each of the 16 European countries included in the study. For civil law countries we find, as expected, a negative relation between firm size and performance while there is no relation for common law countries. For individual countries, the effect of firm size and legal origin on investment performance is however ambiguous.

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