LAW AND CORPORATE GOVERNANCE: MYTH OR REALITY?

The law and finance literature states that legal tradition exerts a first-order impact on corporate financing and governance. It also states the superiority of the English Common Law over the French Civil Law. While influential, the law and finance view has weak theoretical and methodological foundations. This paper examines a number of criticisms addressed to this literature and argues for a less ambitious approach of the interaction between law and finance. Rather than focusing on country-level factors such as legal origin, future work should study how legal variables and firm-level factors simultaneously affect corporate governance practices and financial contracts.