Law Commons^™

A Legal Theory Of Finance, Katharina Pistor

Faculty Scholarship

This paper develops the building blocks for a legal theory of finance. LTF holds that financial markets are legally constructed and as such occupy an essentially hybrid place between state and market, public and private. At the same time, financial markets exhibit dynamics that frequently put them in direct tension with commitments enshrined in law or contracts. This is the case especially in times of financial crisis when the full enforcement of legal commitments would result in the self-destruction of the financial system. This law-finance paradox tends to be resolved by suspending the full force of law where the survival …

Law In Finance, Katharina Pistor

Faculty Scholarship

Law’s relevance to finance is by now well recognized, in no small part due to the literature on "law and finance" (La Porta et al. 1998; La Porta, Lopez-de-Silanes, and Shleifer 2008) celebrated in this journal ten years ago under the heading "the new comparative economics" (Djankov et al. 2003). There will always be some debate as to whether a specific law or regulation distorts or supports markets, but few would argue today that law is irrelevant to financial markets or that they could operate entirely outside it.

This special issue takes the debate about the relation between law and …

Governing Interdependent Financial Systems: Lessons From The Vienna Initiative, Katharina Pistor

Faculty Scholarship

Financial markets have become globally interdependent, yet their governance has remained national at the core. This friction encumbers crisis management and distorts incentives for crisis prevention. The Vienna Initiative, formed to manage the fallout from the global crisis in the countries of Central and Eastern Europe (CEE), offers an alternative coordinated, multi-stakeholder governance framework. A critical prerequisite for such a regime is a coordinating agent, or ‘anchor tenant’, that is deeply vested in the stability of transnational financial systems, but does not directly compete with market actors or regulators. Lessons for more effective governance of financial interdependence are discussed.

On The Theoretical Foundations For Regulating Financial Markets, Katharina Pistor

Faculty Scholarship

How we think about financial markets determines how we regulate them. Since the 1970s modern finance theory has shaped how we think about and regulate financial markets. It is based on the notion that markets are or can be made (more) efficient. Financial markets have been deregulated when they were thought to achieve efficient outcomes on their own; and regulation was designed to lend crutches to them when it appeared that they needed support. While modern finance theory has suffered some setbacks in the aftermath of the global crisis, defenders hold that improving market efficiency should still be the overriding …

Going-Private Decisions And The Sarbanes-Oxley Act Of 2002: A Cross-Country Analysis, Ehud Kamar, Pinar Karaca-Mandic, Eric L. Talley

Faculty Scholarship

This article investigates whether the passage and the implementation of the Sarbanes-Oxley Act of 2002 (SOX) drove firms out of the public capital market. To control for other factors affecting exit decisions, we examine the post-SOX change in the propensity of public American targets to be bought by private acquirers rather than public ones with the corresponding change for foreign targets, which were outside the purview of SOX. Our findings are consistent with the hypothesis that SOX induced small firms to exit the public capital market during the year following its enactment. In contrast, SOX appears to have had little …