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American Law and Economics Review 2005 7(1):184-210; doi:10.1093/aler/ahi008
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© The Author 2005. Published by Oxford University Press on behalf of the American Law and Economics Association. All rights reserved. For permissions, please e-mail: journals.permissions@oupjournals.org

Governing Stock Markets in Transition Economies: Lessons from China

Katharina Pistor

Columbia Law School

Chenggang Xu

London School of Economics

Send correspondence to: Katharina Pistor, Columbia Law School, 435 West 116th Street, New York, NY 10025; E-mail: kpisto{at}elaw.columbia.edu.

Jump-starting stock markets in transition economies has proved difficult. These countries lack effective legal governance structures and face severe information problems. Yet not all financial markets failed because of adverse conditions. Using China’s initial stock market development as a case study, this article suggests that administrative governance can substitute for formal legal governance. At the core of this governance structure was the quota system. It created incentives for regional competition and decentralized information collection at the IPO stage. It was also used to punish regions and responsible officials when companies from their regions failed, as evidenced herein.


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