Our results highlight the importance of the legal protection afforded creditors and minority shareholders and are closely linked to the recent findings of La Porta et al. (1997, 1998, 1999b), hereafter referred to as LLSV. These authors show that the extent to which creditor and minority shareholder rights are protected explains a great deal of the variation in how firms are funded and owned across countries. In particular, LLSV (1997) provide evidence from a sample of 49 countries that weak shareholder rights and poor enforcement lead to underdeveloped stock markets. Here we show that weak enforcement of shareholder rights has first-order importance in determining the extent of exchange rate depreciation and stock market collapse in 1997-98.