Market Response to Inefficient Judiciary: Promoting Rule Compliance and Good Governance Practice

The paper re-examines the concerns on the rule-based governance in poor institutional environment. By relying on the theories and research vehicles of social psychology, we show that under certain conditions, the ‘law on books’ may still play role in governing market transactions, even though no formal enforcement applies. We furthermore expose the potential of the Corporate Governance Code as the ‘signaling device’ and provide arguments as to why this potential may be even stronger in an environment with relatively weak institutions in comparison to the developed market economies.