Perhaps the main challenge to the legal-origin or law and finance hypothesis comes from history. Aldo Musacchio (Harvard Business School) and I have co-edited a special issue of Business History which examines the law and finance hypothesis from an historical perspective. We have also written an article which argues that the law and finance does not pass the test of history - click here. The article's abstract is:
For the body of work known as the law and finance literature, the development of financial markets and the concentration of ownership across countries is to a large extent the consequence of the legal system nations created or inherited decades or hundreds of years ago. Despite the seemingly historical nature of this explanation, most of the body of work supporting the law and finance hypothesis has been ahistorical. This paper summarises the business history literature and provides evidence on investor protection and financial development over the long run that challenges the main tenets of the law and finance literature.
