Law and Finance – State of the Art

The importance of the institutional and legal environment for the behaviour of actors on financial markets, the development of these markets and economic growth only recently attracted attention of research in corporate finance, in particular the so-called law and finance literature. This new research area was initiated by the seminal papers of La Porta, Lopez-de-Silanes, Shleifer and Vishny (hereafter: LLSV). These papers investigated the relationship between a country’s legal framework and its financial development. This new stand of literature shows that differences in the legal framework and in law enforcement (see section 1) affect ownership structure (section 1), the capital structure (availability of external finance section 2), the asset structure (section 3), dividend policy (section 4) and corporate governance (section 5).