Goldsmith’s data have many problems of their own and we have not examined them closely. But they confrm independently the point that the relative fnancial underdevelopment of common law countries at the start of the twentieth century is a myth.

We conclude that common law countries appear to be more fnancially developed than civil law ones at the start of the twentieth century and, in particular, Britain is ahead of France. Over the course of the twentieth century, the differences widen, a divergence that needs to be explained. But the puzzle is divergence, not reversal.

7.2Britain at the Start of the Twentieth Century

A small but lively historical literature argues that Britain had a well developed stock market at the beginning of the twentieth century, with beginnings of ownership dispersion, but that this had nothing to do with the law (Cheffns 2001, Franks, Mayer, and Rossi 2005). Looking both at the LLSV indices of shareholder protection and at legal rulings, this research sees the rights of minority shareholders in the United Kingdom as

only weakly protected. With the law playing a minor role, the researchers credit fnancial development in England to other mechanisms, such as the bonding role of intermediaries and trust.

The position that British shareholders were utterly unprotected has proved controversial. Several authors, for example, argue that Britain led the world in securities regulation in general, and corporate disclosure in particular (Coffee 2001, Laurence Gower 1954, Sylla and George Smith 1995). Britain passed the Directors Liability Act in 1890 and Companies Act in 1900, with the effects of both mandating signifcant disclosure in the prospectus and of holding directors accountable for inaccuracies. Subsequent legislation in the early twentieth century, according to Coffee (2001), mandated on-going fnancial disclosure and addressed some abuses in the new issues market. Britain also had perhaps the best commercial courts in the world, with most professional and least corrupt judges, with centuries of precedents and experience in dealing with fraud.

This small literature is at a standstill, with some writers arguing the British shareholder