Legal Regimes and Corporate Transparency: How Civil vs. Common Law Jurisdictions Shape Investor Trust and Valuation Accuracy in Firms Like BTBT

In 2019, Burford Capital (BTBT), a litigation finance firm, experienced a 50% single-day stock price collapse after a short-seller exposed its opaque valuation methods. This event underscored a critical but often overlooked factor in global investing: how legal regimes shape corporate transparency, investor trust, and valuation accuracy. For firms like BTBT, operating in common law jurisdictions with fragmented disclosure norms, the absence of enforceable transparency standards can create a perfect storm of information asymmetry and speculative risk.

Civil Law vs. Common Law: A Framework for Transparency

Civil law jurisdictions—such as Quebec, France, and Germany—rely on codified statutes and publicly verifiable disclosure requirements. Quebec's Act respecting the legal publicity of enterprises (ARLPE), for instance, mandates the registration of ultimate beneficial owners (UBOs) holding 25% or more of voting rights or fair market value. These rules reduce informational asymmetry by making ownership structures accessible to investors, enabling cross-verification of strategic business model (SBM) disclosures. Firms in such jurisdictions often produce shorter but more precise disclosures, as seen in Quebec-based companies, where legal liability for misrepresentation incentivizes alignment between public filings and actual governance practices.

In contrast, common law jurisdictions like the U.S. and U.K. rely on judicial precedent and self-regulation, leading to fragmented and often unenforceable transparency norms. The U.S. Corporate Transparency Act (CTA), invalidated in 2025 for overstepping federal jurisdiction, exemplifies this instability. Similarly, the U.K.'s Public Register of Significant Controllers (PSC register) lacks rigorous enforcement, allowing gaps in beneficial ownership disclosure. For firms like BTBT, this creates a regulatory vacuum where lengthy, self-reported disclosures can mask speculative business models. BTBT's 2019 annual report, while technically compliant, failed to address the inherent risks of its litigation finance model—a model that relies on opaque legal judgments and uncertain cash flows.

Implications for ESG Investing and Valuation Accuracy

The legal regime of a jurisdiction directly impacts ESG reporting reliability. Civil law systems enforce standardized ESG disclosure frameworks, reducing greenwashing and ensuring consistency in metrics. A 2025 study in The British Accounting Review found that firms in civil law jurisdictions exhibit lower ESG rating dispersion and higher earnings quality, as legal structures mandate rigorous enforcement. Conversely, common law firms often rely on firm-specific ESG initiatives, leading to higher variability in ratings and increased investor skepticism.

For valuation accuracy, civil law transparency reduces the risk of sudden corrections. Quebec-based firms, for example, face fewer valuation shocks due to their publicly verifiable ownership structures. In common law markets, however, the lack of standardized disclosure creates fertile ground for speculative valuations. BTBT's business model—valuing future legal judgments as assets—thrives on opacity, yet collapses when exposed to scrutiny. This dynamic is not unique to litigation finance; it extends to sectors like private equity and fintech, where common law jurisdictions often lack enforceable transparency benchmarks.

Strategic Framework for Cross-Border Investors

To navigate these risks, investors should adopt a legal arbitrage framework:
1. Prioritize Jurisdictions with Enforceable Transparency Laws: Firms with subsidiaries in civil law regions (e.g., Quebec, EU countries) offer more reliable governance data. Cross-verify disclosures with public registers like Quebec's ARLPE.
2. Avoid Overreliance on Common Law Disclosures: Supplement self-reported data with third-party audits or regulatory filings. For example, BTBT's 2019 disclosures lacked external validation, enabling the short-seller to exploit gaps in its valuation logic.
3. Leverage ESG Reforms: The EU's Corporate Sustainability Reporting Directive (CSRD) is narrowing the transparency gap by imposing standardized ESG requirements. Investors should favor firms adapting to such reforms.
4. Hedge Against Legal Uncertainty: In common law markets, allocate a portion of portfolios to safe-haven assets like gold, which act as a buffer against regulatory instability.

Conclusion: Legal Regimes as a Foundational Investment Filter

The legal system underpinning a company's operations is not a peripheral detail—it is a foundational determinant of corporate transparency, valuation accuracy, and ESG reliability. For firms like BTBT, operating in common law jurisdictions with weak disclosure norms, the risk of sudden valuation corrections remains high. Conversely, civil law jurisdictions offer a more predictable environment, where enforceable transparency laws reduce information asymmetry and foster investor trust.

As global markets evolve, investors must integrate legal regime analysis into their due diligence. By prioritizing jurisdictions with codified, verifiable disclosure frameworks and hedging against common law uncertainties, investors can mitigate regulatory risk and capitalize on legal arbitrage opportunities. In an era where trust in corporate governance is increasingly fragile, the law—whether civil or common—remains the ultimate arbiter of transparency.