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Working Paper

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Law’s relevance to finance is by now well recognized, in no small part due to the literature on "law and finance" (La Porta et al. 1998; La Porta, Lopez-de-Silanes, and Shleifer 2008) celebrated in this journal ten years ago under the heading "the new comparative economics" (Djankov et al. 2003). There will always be some debate as to whether a specific law or regulation distorts or supports markets, but few would argue today that law is irrelevant to financial markets or that they could operate entirely outside it.

This special issue takes the debate about the relation between law and finance a step further by proposing that law is more central to contemporary finance than acknowledged in existing literatures: It lends authority to public and private financial instruments or means of pay; delegates power to different regulators, public or private; and vindicates financial products rooted in private contracts if they are generally consistent with the law. The relevance of law to finance has arguably increased with the shift from relational to entity and ultimately market-based finance: The fungibility of financial instruments in anonymous markets depends on credible contractual commitments that are enforceable in a court of law without prior investigation into the creditworthiness of the borrower, originator or intermediary. In short, law is not just an add-on to but is "in" finance.