IDEAS home Printed from https://ideas.repec.org/p/cbr/cbrwps/wp501.html
   My bibliography  Save this paper

Twenty Years of 'Law & Finance': Time to Take Law Seriously

Author

Listed:
  • Gerhard Schnyder
  • Mathias Siems
  • Ruth Aguilera
  • Centre for Business Research

Abstract

The Law and Finance School (LFS) has become an important stream of re-search in management and socio-economic studies. This paper provides the first comprehensive discussion of the first 20 years of LFS literature. Draw-ing on legal theory, we show that, despite the centrality of law to the LFS, the LFS is based on a surprisingly 'thin' theory of law. It does not provide a coherent definition of what primary function law plays in the economy, what criterion makes law 'valid' law, and what mechanism links law to ac-tors' behaviours. Therefore, contrary to existing criticisms of the LFS, we argue that the main issue is not that the LFS overstates the importance of law, but rather that it does not take law seriously enough. We propose ways in which future research could develop a more solid conceptual framework to empirically investigate the impact of law on economic and social outcomes.

Suggested Citation

  • Gerhard Schnyder & Mathias Siems & Ruth Aguilera & Centre for Business Research, 2018. "Twenty Years of 'Law & Finance': Time to Take Law Seriously," Working Papers wp501, Centre for Business Research, University of Cambridge.
    • Handle: RePEc:cbr:cbrwps:wp501
    as

    Download full text from publisher

    File URL: https://www.jbs.cam.ac.uk/cbrwp501/
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. John Armour & Simon Deakin & Priya Lele & Mathias Siems, 2009. "How Do Legal Rules Evolve? Evidence from a cross-country Comparison of Shareholder, Creditor and Worker Protection," Working Papers wp382, Centre for Business Research, University of Cambridge.
    2. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, February.
    3. Shleifer, Andrei & Wolfenzon, Daniel, 2002. "Investor protection and equity markets," Journal of Financial Economics, Elsevier, vol. 66(1), pages 3-27, October.
    4. Edward L. Glaeser & Andrei Shleifer, 2003. "The Rise of the Regulatory State," Journal of Economic Literature, American Economic Association, vol. 41(2), pages 401-425, June.
    5. Rafael La Porta & Andrei Shleifer, 2014. "Informality and Development," Journal of Economic Perspectives, American Economic Association, vol. 28(3), pages 109-126, Summer.
    6. Edward L. Glaeser & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2004. "Do Institutions Cause Growth?," Journal of Economic Growth, Springer, vol. 9(3), pages 271-303, September.
    7. Gennaioli, Nicola & Shleifer, Andrei, 2007. "Overruling and the instability of law," Journal of Comparative Economics, Elsevier, vol. 35(2), pages 309-328, June.
    8. Ross Levine, 2005. "Law, Endowments and Property Rights," Journal of Economic Perspectives, American Economic Association, vol. 19(3), pages 61-88, Summer.
    9. Gary S. Becker, 1974. "Crime and Punishment: An Economic Approach," NBER Chapters, in: Essays in the Economics of Crime and Punishment, pages 1-54, National Bureau of Economic Research, Inc.
    10. Andrei Shleifer, 2005. "Understanding Regulation," European Financial Management, European Financial Management Association, vol. 11(4), pages 439-451, September.
    11. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
    12. Gindis, David & Hodgson, Geoffrey M. & Huang, Kainan & Pistor, Katharina, 2017. "Legal institutionalism: Capitalism and the constitutive role of lawAuthor-Name: Deakin, Simon," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 188-200.
    13. Stijn Claessens & Luc Laeven, 2003. "Financial Development, Property Rights, and Growth," Journal of Finance, American Finance Association, vol. 58(6), pages 2401-2436, December.
    14. Gregory Jackson & Richard Deeg, 2008. "Comparing capitalisms: understanding institutional diversity and its implications for international business," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 39(4), pages 540-561, June.
    15. Priya P. Lele & Mathias M. Siems, 2009. "Shareholder Protection: A Leximetric Approach," Chapters, in: Thankom Gopinath Arun & John Turner (ed.), Corporate Governance and Development, chapter 10, Edward Elgar Publishing.
    16. Milhaupt, Curtis J. & Pistor, Katharina, 2008. "Law & Capitalism," University of Chicago Press Economics Books, University of Chicago Press, number 9780226525273, October.
    17. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    18. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    19. Mark J. Roe & Jordan I. Siegel, 2009. "Finance and Politics: A Review Essay Based on Kenneth Dam's Analysis of Legal Traditions in The Law-Growth Nexus," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 781-800, September.
    20. Cheffins, Brian R, 2001. "Does Law Matter? The Separation of Ownership and Control in the United Kingdom," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 459-484, Part I Ju.
    21. N. Bedu & Matthieu Montalban, 2014. "Analysing the uneven development of private equity in Europe: Legal origins and diversity of capitalism," Post-Print hal-03141643, HAL.
    22. Nicola Gennaioli & Andrei Shleifer, 2008. "Judicial Fact Discretion," The Journal of Legal Studies, University of Chicago Press, vol. 37(1), pages 1-35, January.
    23. Glaeser, Edward & Scheinkman, Jose & Shleifer, Andrei, 2003. "The injustice of inequality," Journal of Monetary Economics, Elsevier, vol. 50(1), pages 199-222, January.
    24. Fama, Eugene F, 1980. "Agency Problems and the Theory of the Firm," Journal of Political Economy, University of Chicago Press, vol. 88(2), pages 288-307, April.
    25. Dionysia Katelouzou & Mathias Siems, 2015. "Disappearing Paradigms in Shareholder Protection: Leximetric Evidence for 30 Countries, 1990-2013," Working Papers wp467, Centre for Business Research, University of Cambridge.
    26. Matthieu Montalban & Nicolas Bedu, 2014. "Analysing the uneven development of private equity in Europe: legal origins and diversity of capitalism," Post-Print hal-01135283, HAL.
    27. Thibault Darcillon, 2015. "How does Finance Affect Labor Market Institutions? An Empirical Analysis in 16 OECD Countries," PSE-Ecole d'économie de Paris (Postprint) hal-01248941, HAL.
    28. Hall, Peter A. & Taylor, Rosemary C. R., 1996. "Political science and the three new institutionalisms," MPIfG Discussion Paper 96/6, Max Planck Institute for the Study of Societies.
    29. Tepe, Markus & Gottschall, Karin & Kittel, Bernhard, 2010. "A structural fit between states and markets? Public administration regulation and market economy models in the OECD," TranState Working Papers 120, University of Bremen, Collaborative Research Center 597: Transformations of the State.
    30. Hayek, F. A., 2011. "The Constitution of Liberty," University of Chicago Press Economics Books, University of Chicago Press, number 9780226315379 edited by Hamowy, Ronald, September.
    31. Mahoney, Paul G, 2001. "The Common Law and Economic Growth: Hayek Might Be Right," The Journal of Legal Studies, University of Chicago Press, vol. 30(2), pages 503-525, Part I Ju.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Licht, Amir N. & Adams, Renee B., 2020. "Shareholders and Stakeholders around the World: The Role of Values, Culture, and Law in Directors' Decisions," LawFin Working Paper Series 13, Goethe University, Center for Advanced Studies on the Foundations of Law and Finance (LawFin).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrei Shleifer & Florencio Lopez-de-Silanes & Rafael La Porta, 2008. "The Economic Consequences of Legal Origins," Journal of Economic Literature, American Economic Association, vol. 46(2), pages 285-332, June.
    2. John Armour & Simon Deakin & Prabirjit Sarkar & Mathias Siems & Ajit Singh, 2009. "Shareholder Protection and Stock Market Development: An Empirical Test of the Legal Origins Hypothesis," Journal of Empirical Legal Studies, John Wiley & Sons, vol. 6(2), pages 343-380, June.
    3. Gur Aminadav & Elias Papaioannou, 2020. "Corporate Control around the World," Journal of Finance, American Finance Association, vol. 75(3), pages 1191-1246, June.
    4. Claessens, Stijn & Yurtoglu, B. Burcin, 2013. "Corporate governance in emerging markets: A survey," Emerging Markets Review, Elsevier, vol. 15(C), pages 1-33.
    5. Armour, J. & Deakin, S. & Mollica, V. & Siems, M.M., 2010. "Law and Financial Development: What we are learning from time-series evidence," Working Papers wp399, Centre for Business Research, University of Cambridge.
    6. John Armour & Simon Deakin & Priya Lele & Mathias Siems, 2009. "How Do Legal Rules Evolve? Evidence from a cross-country Comparison of Shareholder, Creditor and Worker Protection," Working Papers wp382, Centre for Business Research, University of Cambridge.
    7. Djankov, Simeon & La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei, 2008. "The law and economics of self-dealing," Journal of Financial Economics, Elsevier, vol. 88(3), pages 430-465, June.
    8. Michael Greenstone & Paul Oyer & Annette Vissing-Jorgensen, 2006. "Mandated Disclosure, Stock Returns, and the 1964 Securities Acts Amendments," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 399-460.
    9. Thorsten Beck & Ross Levine, 2008. "Legal Institutions and Financial Development," Springer Books, in: Claude Ménard & Mary M. Shirley (ed.), Handbook of New Institutional Economics, chapter 11, pages 251-278, Springer.
    10. Felix J. Lopez-Iturriaga & Emilio Lopez-Millan, 2015. "Institutional Framework, Corporate Ownership Structure, and R&D Investment: An International Analysis," HSE Working papers WP BRP 36/MAN/2015, National Research University Higher School of Economics.
    11. Kurt A. Desender & Mircea Epure, 2013. "Corporate governance and corporate social performance: The influence of ownership, boards and institutions," Economics Working Papers 1398, Department of Economics and Business, Universitat Pompeu Fabra, revised Oct 2015.
    12. Caprio, Gerard & Laeven, Luc & Levine, Ross, 2007. "Governance and bank valuation," Journal of Financial Intermediation, Elsevier, vol. 16(4), pages 584-617, October.
    13. Gerhard Schnyder & Centre for Business Research, 2018. "Investigating New Types of 'Decoupling': Minority Shareholder Protection in the Law & Corporate Practice," Working Papers wp502, Centre for Business Research, University of Cambridge.
    14. Aggarwal, Raj & Goodell, John W., 2018. "Sovereign wealth fund governance and national culture," International Business Review, Elsevier, vol. 27(1), pages 78-92.
    15. D'Souza, Juliet & Nash, Robert, 2017. "Private benefits of public control: Evidence of political and economic benefits of state ownership," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 232-247.
    16. Charron, Nicholas & Dahlström, Carl & Lapuente, Victor, 2012. "No law without a state," Journal of Comparative Economics, Elsevier, vol. 40(2), pages 176-193.
    17. Kurt A. Desender & Mircea Epure, 2015. "Corporate Governance and Corporate Social Performance: The Influence of Boards, Ownership and Institutions," Working Papers 730, Barcelona School of Economics.
    18. Ferrell, Allen & Liang, Hao & Renneboog, Luc, 2016. "Socially responsible firms," Journal of Financial Economics, Elsevier, vol. 122(3), pages 585-606.
    19. Doidge, Craig & Andrew Karolyi, G. & Stulz, Rene M., 2007. "Why do countries matter so much for corporate governance?," Journal of Financial Economics, Elsevier, vol. 86(1), pages 1-39, October.
    20. Aguilera, Ruth V. & Desender, Kurt A. & Kabbach de Castro, Luiz Ricardo, 2011. "A Configurational Approach to Comparative Corporate Governance," Working Papers 11-0103, University of Illinois at Urbana-Champaign, College of Business.

    More about this item

    Keywords

    law; regulation; corporate governance; theory;
    All these keywords.

    JEL classification:

    • K0 - Law and Economics - - General
    • L5 - Industrial Organization - - Regulation and Industrial Policy
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cbr:cbrwps:wp501. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Ruth Newman (email available below). General contact details of provider: http://www.jbs.cam.ac.uk .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.