r. david mclean, jeffrey pontiff and akiko watanabe - Center for ...

4.2.2. Measures of Investor Protection
Law. We create a dummy variable which is is equal 1 if a country is of common law
origin and zero if the country is of civil law origin. This measure is from La Porta et al.
(1997). La Porta et al. show that common law countries tend to have stronger investor
protection laws than civil law countries.
Accounting is an index of accounting standards; a higher value represents better
accounting standards. The index is based on the reporting or omission of 90 items from
annual reports. A higher value signals better accounting standards. This measure is from La
Porta et al. (1997).
Criminal is an index which measures the ease with which accountants, directors, and
distributors can be pursued in criminal courts for not fully disclosing information in
prospectuses. A higher value signals greater investor protection. This variable is from La
Porta et al. (2006).
Liability is an index which measures the ease with which accountants, directors, and
distributors can be pursued in civil courts for not fully disclosing information in
prospectuses. A higher value signals greater investor protection. This variable is from La
Porta et al. (2006). La Porta et al. show that countries with higher values of Liability have
more developed equity markets.
Protect is the principle component of three different investor protection indices. The
indices are Liability, an index of disclosure requirements, and an index of anti-director rights.
A higher value of Protect signals greater investor protection. This variable is from La Porta
21