Oxford Law special lecture series - The common law and finance: perspectives from the bench

It is now twenty years since the publication of La Porta et al’s “Law and Finance” paper in the Journal of Political Economy. Although the methodology used in early law and finance papers attracted various criticisms, the finding that levels of investor protection vary systematically by legal family and are strongest (at least for some measures of protection) in common law systems has proved highly influential. One of the dominant explanations advanced for the apparent persisting influence of legal origin is the judiciary, and in particular the idea that the judge in a common law system is best positioned to adapt legal rules to changes in market conditions (Beck, Demirgüç-Kunt and Levine, 2003). It has been suggested that “financial markets may be an area where the adaptability of judge-made rules, as exemplified by the American Delaware courts, is especially beneficial” (La Porta, Lopez-de-Silanes, Shleifer, 2008). This claim, which reprises ideas about the adaptive capacity of the common law that featured in foundational law and economics literature, has largely been developed through historical analysis of the evolution of courts in particular colonising jurisdictions, rather than through (e.g.) contemporary comparative studies of the functioning of courts.