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.
Using a hand-collected dataset, we document that firms take more risks when one of their directors experiences a corporate bankruptcy at another firm where they concurrently serve as a director. This increase is concentrated among directors...Read more
Mechanisms of market inefficiency are some of the most important and least understood institutions in financial markets today. A growing body of empirical work reveals a strong and persistent demand for “safe assets,” financial instruments that...Read more
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