This thesis presents a multi-national empirical study of the relationship between financial development and economic growth from the legal protection perspective based on both micro firm-level data and macro country-level data. Our study comprehensively examines the investor legal protection in terms of legal statues, legal enforcement and legal origins. We first examine the mechanism through which the legal system affects firm investment behaviour. The study suggests that a well-functioning legal system will benefit financial development; consequently access to external finance in the financial sector will be easier, thus firms are less sensitive to internal financing. Secondly, we investigate this relationship by taking into account of the cost of capital. The empirical study provides evidence that stronger legal protection will lead to a decrease in the cost of debt and equity, since it promotes financial development and thus funds are more available. Finally, we construct four new indices to measure financial development from the qualitative aspect rather than the quantitative aspect. The indices measure the liquidity and volatility of financial market while assessing the efficiency of banking and non-banking sector. We find that economic growth is accelerated by financial development which is exogenously determined by the functioning of legal systems.

The documentary credit has for a long time served as a very reliable form of financial instrument in the trading of international goods. The certainty of payment guaranteed under the documentary system is attributed to the autonomous nature of the credit contract, which is that it is independent of and unaffected by the contract of sale which it supports. So long as the documents which are presented strictly comply with the terms of the credit, the paying bank will be under an obligation to pay. However, documents which are non-compliant are also frequently presented in practice. The autonomous characteristic of the instrument also gives rise to problems because there are circumstances where, even though compliant documents are tendered, payment made under the credit would be unfair. This thesis attempts to investigate the various grounds which could provide a basis for withholding payment under a documentary credit. From the perspective of all the main parties involved in a documentary credit transaction, issues relating to payment are of utmost importance. Discrepant documents and fraud, which are well established as valid grounds, will be examined. The thesis will also explore other possible grounds to withhold payment such as illegality, nullity, unconscionability and breach of negative stipulations which exist in the underlying contract connected to the credit. The parameters of these grounds will be identified and where appropriate, recommendations will be made.