Lloyd's Maritime and Commercial Law Quarterly
THE COMMON LAW AND FINANCE
Joshua Getzler * and Kristin van Zwieten †
The four papers that follow this introduction are lectures that were delivered in Oxford as part of a special series, The common law and finance: perspectives from the bench.1 In the series, senior judges from four jurisdictions (Hong Kong, Australia, the UK and the US) were invited to reflect on the role of the common law judge in the regulation of commerce and finance. In this introduction, we explain the motivation for the series, provide a synopsis of the papers, highlight some common themes, and identify some areas that might usefully be the subject of further research.
The common law judge in the law and finance literature
It has now been a little over two decades since the publication of La Porta et al’s seminal “Law and finance” paper,2 in which the authors sought to compare measures of investor protection across countries and relate differences in levels of protection to the availability of finance.3 The methodological step that made it possible to explore the latter question, a question of causation that would be expected to be fraught with endogeneity problems,4 was the decision to classify countries in the sample by legal ‘origin’, or legal family. As the authors explained:5
“Even if we were to find that legal rules matter, it would be possible to argue that these rules endogenously adjust to economic reality, and hence the differences in rules and outcomes simply reflect the differences in some other, exogenous, conditions across countries … this is where our focus on the legal origin becomes crucial. Countries typically adopted their legal systems involuntarily (through conquest or colonisation). Even when they chose a system freely … the crucial consideration was language and the broad political stance of the law rather than the treatment of investor protections. The legal family can therefore be treated as exogenous to a country’s structure of corporate ownership and finance. If we find that legal rules differ substantially across legal families and that financing and ownership patterns do as well, we have a strong case that legal families, as expressed in the legal rules, actually cause outcomes.”
* Professor of Law and Legal History, Fellow of St Hugh’s College, University of Oxford, Conjoint Professor, UNSW.
† Clifford Chance Associate Professor of Law and Finance, Director of the Commercial Law Centre, Fellow of Harris Manchester College, University of Oxford.
1. Funding for the series was generously provided by the Bapsybanoo Marchioness of Winchester Trust, the Travers Smith Fund, and the Commercial Law Centre at Harris Manchester College, Oxford.
2. R La Porta, F Lopez-de-Silanes, A Shleifer and Robert W Vishny, “Law and Finance” (1998) 106 Journal of Political Economy 1113.
3. This was done through a follow-on paper, “The Legal Determinants of External Finance” (1997) 52 J of Finance 1131.
4. See K Pistor, “Rethinking the ‘Law and Finance’ Paradigm” (2009) 6 BYU L Rev 1647, 1652; J Armour, S Deakin, V Mollica and M Siems, “Law and Financial Development: What We Are Learning from Time-Series Evidence” (2009) 6 BYU L Rev 1435, 1447–1449.
5. (1998) 106 Journal of Political Economy 1113, 1126.
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