Research Area

I. Supervision and Control of Financial Intermediaries 

During the last two decades, we have witnessed significant changes in both the international and national financial markets, which have become increasingly competitive. This competitiveness is even growing. Financial innovations play an important role in this new atmosphere. Private investors are ingrowing numbers acting on the markets in order to enlarge their retirement provisions. These changes to the markets result in a new form of supervision, control and regulation of markets and intermediaries needed in order to accommodate the new situation. As one could observe during the subprime mortgage crisis, virtually all parts of the financial system are closely intertwined. This includes the retail, banking and financial intermediaries sector as well as the financial markets in general as the place, where mortgages and structured products are traded. Current and intended research projects in this area take into account this complexity. In the retail section, research topics will include: How should investor protection be crafted to reach its mission to its highest potential? How can investor protection be designed to react to changed competitive environments? Are the rules and regulations in terms of granting credit to financially precarious debtors sufficient? Research in the above mentioned fields require a thorough interaction with the legal framework and the current legal projects, especially the European ambitions to harmonize the European markets. At the same time, an understanding of the basic economic mechanisms is another requirement for engaging in these fields of research. Another aspect of this field of research is the role that rating agencies play. The question of whether or how to regulate these rating agencies has been at hand for some time, recently regaining research interest as the subprime crisis casts its shadows of doubt on this industry as well. Questions as to a possible regulation of these agencies are in the center of this field of research. In the area of Corporate Finance, research projects regarding venture capital are on the agenda. These also focus on the role of the state as the provider of financial aid, a topic which is up to date as prospective law enactment puts emphasis on this matter. Specific importance shall be placed on the question as to in what ways these state activities influence externalities in positive as well as in negative ways. This field of study includes the explicit research of the respective legal components.

The following specific research topics could be extracted from the project as a whole mentioned above:

1. The classical supervision over financial markets 

  • Organization, competencies, distinction and coordination of the supervision over financial markets
  • System stability and efficiency
  • Cross-border supervision and control: legal and economic implications

2. Novel financial intermediaries 

  • Internal governance structures and implications for market behaviour
  • Structures and behaviour of novel financial intermediaries: empirical analysis of external effects
  • Joint systematic risks of novel financial intermediaries

3. Asset management and retail credit business (retail investment; asset management; private insolvency) 

  • Analysis of organization and structure of private banking
  • Investment advice and liability: regulatory implications
  • Legal and economic evaluation of the requirements stated by the EU (MiFID, UCIT)

4. Novel Financial Instruments 

  • ABS (PMBS, CMBS) and implications for financial market stability
  • Credit Derivatives (CDOs), risk pricing financial market stability

II. Corporate equity, corporate control and legal regulation 

This research project centers on the factors for development of modern international capital markets by means of a comparative analysis of international institutions. By this, it is intended to set up the relatively young field of Law and Finance. Finance has developed during the last 30 years as a combination of capital markets theory and financial theory and has been pushed into the focus of economics by the dramatic changes in the financial markets over the years. An important landmark for this development was the American takeover movement in the 1980s. Law and Finance as a distinctive field was eventually established trough the entanglement of the financial system with the corporate control system. Important benchmarks for Law and Finance in that respect are the major financial and economic steering mechanisms. The market for corporate control may serve as an example for such a benchmark. It is a link between the financial system and the corporations and serves as an example for economic and legal interaction between the two. The function of financial intermediaries has changed with the increasing importance of the market for corporate control. According to these changes, the importance of specific financial instruments has changed as well. While the first research area is concentrating on the financial intermediaries and state regulation as a solution, the second research area focuses on the corporate sector as the driving force behind the financial markets and therefore starts its attempts of solving the problem at hand with solving the information and control related problems. This results in a clear separation for work on the two intertwined research areas in order to analyze financial stability. The following specific research topics could be extracted from the research project mentioned above:

1. Market for corporate control

  • Prearrangements for merger
  • Economic analysis of the regulation of acting in concert in take over law
  • Capital market related rules of conduct for managers of a corporation in case of a prospective takeover by Private Equity companies
  • Liability in public takeovers
  • Freeze-outs comparative law of France, Italy, Spain and Germany
  • Sell-out and freeze-out in Germany and an economic analysis of the implementation of the takeover directive

2. Changed governance in financial systems

  • Empirical analysis of the influence hedge funds have on portfolio companies and effects of the activities of hedge funds and private equity funds on portfolio companies
  • Industrial-economical analysis of the control for mergers in the banking sector
  • Legal questions regarding credit buy-out
  • The control of general terms and conditions (AGB) of large credit agreements
  • Risk management employed by banks to combat money laundering

3. Disintermediation of Corporate Finance and Innovation Finance

  • Analysis of form of organization for private equity and funds
  • Legal problems concerning credit derivatives
  • Legal questions regarding certificates and resulting implications for pricing
  • Anti-dilution provisions in convertible securities taking into account US legislation
  • Majority position of bond creditor
  • Modernization of obligation law with respect to the changing of bond terms in international comparison
  • Effects of an issuer restructurization on the offered financial instruments
  • The more economic approach in competition law and external technology provisions
  • Structuring of agreements and corporate governance approaches for cross border VC syndication
  • Forms of organization: Non-Profit or For-Profit

4. Form of Organization of Investment Vehicle

  • Analysis of forms of organization for private equity funds
  • Liability for promoters of a German Limited
  • Piercing the corporate veil and creditor protection - legislative
  • Pledging of shares of GmbH and GmbH & Co KG

III. Requirements for stability on the level of microeconomics - Microeconomic risks for the change market and financial market and the ideal institutional framework for monetary and fiscal policies 

While the examination of the financial stability is closely related to the microperspective, the monetary stability must be analyzed from a macroperspective point of view. At the same time, the latest development of the credit and capital markets showed that the financial stability and the stability of the financial market system have serious repercussions for the macroeconomic stability and for policymakers. Considering this, the goal of this interdisciplinary research program is to examine essential aspects of the effectiveness and implications of the monetary and fiscal policy, the coherence between the development of financial markets and monetary and macroeconomic stability, as well as questions concerning the institutional structuring of essential policymakers. This analysis is intended to consider the fact that at the outset of the 21st century, the monetary and fiscal policy faces a tremendous challenge, which for the most part is attributable to changes of the macroeconomic framework, the structure of the financial markets and the institutional structure of financial policy. The project intends to analyze these challenges for the current monetary and fiscal policy and decisions as well as the threats and risk provisioning concerning public finances.

The requirements for financial stability can (among others) be met by the creation and structuring of adequate institutions. One of the key tasks for the interdisciplinary research within the scope of this project is to develop appropriate procedures and instruments for the creation of such institutions.
Research topics to be extracted from the project mentioned above are the following:

1. Ideal institutional framework for the monetary and fiscal policy facing global financial markets

  • Importance of a guarantee for the independence of monetary stability
  • Is the protection of the operability of financial markets a state goal or one of the issuing banks?
  • distribution of supervision and control over banks between issuing banks and specialized state authorities

2. Relative efficiency of monetary and fiscal policies

  • Impact of the systematic component of monetary policies on the efficiency of fiscal policies
  • Bound fiscal policies: reduction of cyclical risks vs. increase of inflationary risks
  • Quantitative impacts of monetary policies on risk premiums

3. The sustainable configuration of the funding of a federal state system's units

  • Borders for the raising of credits by the state (on a national level, on a federal state level, on the level of municipality and on the level of side budgets)
  • The "bail-out-problem" on the European and national level

4. Impacts of increasing integration of goods markets and financial markets on the transmission of monetary and fiscal signal

  • The role of international financial market shocks and capital flows for the synchronization of business cycles between different economic areas
  • Evolution and equalization of currency fluctuations and the correlation with monetary policies
  • Transmission of monetary and fiscal signals into integrated national economies

As should become clear from these three research areas, questions involving monetary and financial stability, financial regulation and corporate governance heaviliy depend on a sound economic and legal analysis. Therefore the law and economics approach seems to be particularly well suited to tackle them, and that is why this approach is at the center of our program.