Law and finance in emerging economies: Germany and Britain 1800-1913

By most standards, Britain in the 19th century was the world's leading financial nation, with more developed capital markets than any other country. An influential view in the law and finance literature argues that, holding macroeconomic factors constant, the different financial development can be attributed to more stringent disclosure regulation in Britain. Presenting a granular analysis of regulatory reform in Britain and Germany, this article shows that the level of disclosure regulation was largely comparable in both countries during the relevant period and that reform initiatives were not an exogenous stimulus of financial development, but evolved incrementally in response to changing market conditions. On the other hand, the legal regime governing the formation of stock corporations developed in diametrically opposed directions in the two countries as a result of concerted efforts by policy makers to change market conditions. The article argues that these rules, which were relevant to organisational choice and the availability of different sources of financing, stand out as the most striking difference between Germany and the UK.