Doctrinal Path Dependence and Functional Convergence: The Case of Investment Securities

53 Pages Posted: 31 Jan 2006

See all articles by Eva Micheler

Eva Micheler

London School of Economics - Law School

Date Written: January 31, 2006


Globalisation has significant effect on the way business is done in most countries. The need to compete on an international level causes companies to adjust their business practice to whatever they believe to be the most promising strategy for succeeding in a global world economy. Globalisation has not only affected the markets for goods and services, but also financial markets. Companies seek to satisfy their need for capital by marketing their securities in more than one jurisdiction. At the same time, investors seek to diversify their portfolios by buying securities in foreign companies. Financial markets have become global markets.

This development is subject of an academic debate in the field of comparative law which will be analysed in this paper. One of the current discussion topics in the field is whether, with globalising economies, legal systems converge. The focus of this discussion is corporate governance.

The central focus of the debate is whether the economic forces driving globalisation or other forces such as politics or culture are more influential in shaping the future of corporate law. Notwithstanding the differences in view on the influence of these respective factors, the scholarship examined in this paper views the law is as a variable that is a function of respective other non-legal driving forces and that can be changed to any desirable degree.

This paper challenges this underlying assumption. It argues that legal development is not simply a function of external forces. Legal development and law reform are to a significant degree determined by the doctrinal framework that is in place in a particular legal system. To be sure, the paper does not put forward the view that the law is independent of external forces. It nevertheless argues that legal doctrine shapes the content of future legal development. The paper also argues that legal doctrine determines what type of market infrastructure emerges in a particular legal system.

The thesis of this paper will be illustrated by a case study relating to the law of investment securities. The law of investment securities has been chosen for such a case study because it has, in recent years, been subject to pressure for convergence perhaps an even larger extent than the corporate governance rules. Notwithstanding this, the convergence/path dependence debate has so far neglected this branch of corporate law. This paper attempts to fill this gap. The thesis put forward in this paper will be illustrated by a case study analysing the law relating to investment securities. The findings in the case study point to a general obstacle to the convergence of laws that affects not only the law of investment securities but corporate law in general. The paper concludes that convergence is nevertheless possible but only consistently with incumbent legal doctrine. Because legal systems are restricted by legal doctrine, they can only converge on a functional level.

Keywords: path dependence, convergence, investment securities

Suggested Citation

Micheler, Eva, Doctrinal Path Dependence and Functional Convergence: The Case of Investment Securities (January 31, 2006). Available at SSRN: or

Eva Micheler (Contact Author)

London School of Economics - Law School ( email )

Houghton Street
London WC2A 2AE, WC2A 2AE
United Kingdom

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