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Market Standards in Financial Contracting: The Euro’s Effect on Choice of Law in European Debt Securities

48 Pages Posted: 2 Oct 2012 Last revised: 13 Jul 2015

Andreas Engert

University of Mannheim

Lars Hornuf

University of Bremen - Faculty of Business Studies and Economics; Max Planck Institute for Innovation and Competition; CESifo (Center for Economic Studies and Ifo Institute)

Date Written: February 16, 2015

Abstract

We study market standardization in contract design, specifically in choice-of-law provisions of European debt securities. We show theoretically that standardization benefits from investors’ familiarity with a contract law can be a major factor in the choice of contract law applicable to debt securities. To test this theory, we exploit the introduction of the Euro in 1999 as a natural experiment: The new common currency created a jump in cross-border investment. We hypothesize that the demand for an international contracting standard increased as the national securities markets converged into a single Euro area market. Using a difference-in-difference approach, we show that there was a strong and significant shift to English law in the Euro zone as compared to other European countries.

Keywords: financial contracting, netwoerk effect, debt securitis, economic and monetary union

JEL Classification: G15, L14, K12

Suggested Citation

Engert, Andreas and Hornuf, Lars, Market Standards in Financial Contracting: The Euro’s Effect on Choice of Law in European Debt Securities (February 16, 2015). Available at SSRN: https://ssrn.com/abstract=2155958 or http://dx.doi.org/10.2139/ssrn.2155958

Andreas Engert

University of Mannheim ( email )

Schloss Westflügel
68131 Mannheim, 68131
Germany

HOME PAGE: http://engert.info

Lars Hornuf (Contact Author)

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

University of Bremen - Faculty of Business Studies and Economics ( email )

Bremen, D-28359
Germany
+49 89 20348619 (Phone)

HOME PAGE: http://www.hornuf.com

Max Planck Institute for Innovation and Competition

Marstallplatz 1
Munich, 80539
Germany

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