Corporate Law and Ownership Structure : A Darwinian Link?

The quot;law mattersquot; thesis posits that a legal regime which allows investors to feel confident about owning a tiny percentage of shares in a firm constitutes the crucial quot;bedrockquot; underlying an economy where widely-held public companies dominate. This paper draws attention to and provides a critique of a pivotal assumption embedded within the thesis, this being that a separation of ownership and control offers inherent economic advantages and therefore is the quot;naturalquot; state of affairs for large business enterprises. The opening sections of the paper identify the essential attributes of the quot;law mattersquot; argument and discuss how the thesis is related to the proposition that diffuse share ownership is associated with efficiency. The paper then assesses whether a separation of ownership and control is likely to provide a competitive edge. In so doing, due account will be taken of evidence that casts doubt upon the idea that this sort of ownership structure is quot;naturalquot; in a market economy. The paper concludes with some observations on the circumstances under which the introduction of stronger legal protection for minority shareholders might foster a move towards diffuse share ownership and on certain risks associated with law reform of this character