The Enlightenment and Financial Crisis of 2008 : An Intellectual History of Corporate Finance Theory

This article examines the financial crisis of 2008 and connections to corporate finance theory. The financial products and deregulation that led to the crisis were informed by corporate finance theories. These theories include diversification, the capital asset pricing model, and options theory. The theories have a scientific basis but can get deployed (in the form of financial product presentation or policy justification) in ways that deviate from the scientific articulation. The article provides an intellectual history of mainstream corporate finance theory and argues that it, despite the consequences of its misuse, is a valuable scientific achievement and even arguments for its correction (most notably by behavioral finance theorists) do not detract from its value. The debate within corporate finance is used to illustrate the virtues of Enlightenment principles