A Law-and-Finance Perspective on Capital Markets

The seminal paper by La Porta et al. on ‘Law and Finance’ empirically examined whether there is a causal link between high levels of shareholder protection and financial development. Subsequent studies of this ‘Law & Finance School’ also addressed many further legal topics. This chapter outlines the research by the Law & Finance School as far as it relates to capital markets. In addition, it considers empirical research by other scholars that also aims to explore the relationship between law and capital markets, in particular research that has been more specific in examining the causal factors of specific financial outcomes. Finally, this chapter identifies and discusses a number of common themes and, doing so, it also raises some doubts about the soundness of these studies