Information and Incomplete Investor Protection

Poor legal protection of shareholders is an often cited impediment to the efficient financing of businesses in developing and transition economies. In the presence of informational asymmetry between entrepreneurs and investors, however, higher levels of legal enforcement of fiduciary duty may be associated with the selection of poorer projects on the part of the entrepreneur. Hence improved interim auditing capabilities, or mandatory disclosure of the firm's earnings, may be more important than giving investors an advantage over managers in court