The changing corporate governance paradigm:: Implications for developing and transition economies

The rapidly growing literature studying the relationship between legal origin, investor protection, and finance has stimulated an important debate in academic circles. It has also prompted many applied research projects and strong policy statements. This article discusses the implications of this literature, particularly for developing and transition economies. It concludes that its focus on small investors is too narrow when applied to these countries. This group of investors is unlikely to play an important role in most developing and transition economies. External investors may still be crucial, but they are more likely to come in as strategic investors or as creditors. The article proposes a broader paradigm, encompassing other stakeholders and mechanisms of governance, to help improve the understanding of the corporate governance problems facing these countries and lead to policy recommendations that compensate for the weaknesses of capital markets.