The success of a capitalist economy rests upon the ability of finance to sustain potentially
infinite growth, based on funding today the output of tomorrow. Finance, however, needs
rules. The aim of the law and finance scholarship is precisely to identify the best regulation
of finance to support economic growth.
Traditionally, law and finance is concerned with investor protection.
That would be enough
if the future was predictable. However, because the future is in fact uncertain, the prices of
financial assets are flawed and in the short run they may result in serious mistakes, if not
widespread crises. Although these mistakes are corrected in the long run, a lot of harm
may occur in between.
Financial law should therefore to be concerned not only with investor protection, but also
with mitigating the temporary excesses of markets in allowing or restricting access
to finance. The challenge of this goal is to remedy market myopia without allowing
policymakers to abuse the power of governments. However imperfect, prices remain the
best instrument of discipline and growth in a market economy.
In firms with multiple blockholders governance via exit is affected by how blockholders react to each others' exit. Institutional investors, who hold the majority of equity blocks, are heterogeneous in their incentives. How do these incentives...Read more
We provide an extensive analysis of the payout policy of U.S. banks during the crisis to examine potential risk-shifting and signaling motives of banks. We estimate an empirical model of bank payouts to assess the extent to which changes in...Read more
Shocks that hit part of the financial system, such as the subprime mortgage market in 2007, can propagate through a complex network of interconnections among financial and non-financial institutions. As the financial crisis of 2007-2009 has shown...Read more
This paper investigates what we can learn from the financial crisis about the link between accounting and financial stability. The picture that emerges ten years after the crisis is substantially different from the picture that dominated the...Read more