48 Pages Posted: 2 Oct 2012 Last revised: 13 Jul 2015
Date Written: February 16, 2015
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: 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