Agents’ Response to Inefficient Judiciary: Social Norms and the Law in Transition

The paper questions the impact of rule-based governance in an environment with poor legal enforcement and general mistrust in the law-setting institutions. We conduct a quasi-experiment and a survey to prove that ‘law on books’ can still play a role by triggering the social norm of ‘obeying the law’. We furthermore expose and empirically confirm the role of the Corporate Governance Code as a signaling tool, and discuss why in a weak institutional environment the Code’s potential may be even stronger than in the developed market economies.