Law of incorporation and firm ownership structure: The law and finance theory revisited

La Porta et al.'s [La Porta, R., Lopez-de-Silanes, F., Shleifer, A., & Vishny, R. (1998). Law and finance. Journal of Political Economy, 106(6), 1113-1155] theory of law and finance predicts that minority controlled ownership structures, i.e. those that allow voting rights to exceed cash-flow rights, are more numerous in legal contexts that do not adequately protect investors against expropriation attempts by dominant shareholders. The purpose of our study is to test this prediction in a unique environment, that of the province of Quebec. Quebec owes its distinct status to the fact that it is the only jurisdiction among the 10 provinces of Canada to operate under civil law, while the other nine provinces operate under common law. We show that, in comparison to those in the rest of Canada, dominant shareholders in Quebec corporations hold a higher percentage of voting rights, with a wider gap between their voting rights and cash-flow rights.