Market standards in financial contracting: The Euro’s effect on debt securities

• Published in: Journal of international money and finance Vol. 85; pp. 145 - 162
• Main Authors: Engert, Andreas, Hornuf, Lars
• Format: Journal Article
• Language: English
• Published: Elsevier Ltd 01.07.2018
• Subjects: Debt securities; Economic and monetary union; Financial contracting; Network effects; Standardization; Financial contracting; Debt securities; Standardization; Economic and monetary union; G15; Network effects; K12; L14
• ISSN: 0261-5606; 1873-0639
• DOI: 10.1016/j.jimonfin.2018.03.017

•The Euro led to a rise to dominance of English contract law in European debt securities.•The effect is particularly strong for debt securities in local markets.•It is not explained by differences in the quality of English law.•Standardization benefits provide the best explanation for this shift. The introduction of the Euro ushered in a rise to dominance of English contract law in European debt securities. Corporate issuers in the Euro zone chose English law significantly more often than a control group from other European countries. The Euro effect on choice of law is particularly strong for debt securities in local markets that, arguably, were most affected by the Euro. The Euro effect is not explained by differences in the suitability of English law compared to other laws, a change in issuer composition or debt securities types, and the greater market share of British and American underwriters. We argue that increased standardization benefits (network effects) from a boost in cross-border investment provide the best account of why English law conquered the European debt securities market.