Rethinking capital markets reform: a reassessment of Olson problem and regulatory dualism in the German capital markets from a varieties of capitalism perspective

Abstract

Since its proposition by Peter A. Hall and David Soskice the Varieties of Capitalism (VoC) approach has been particularly important to explain the relationship between economic agents and sets of institutional arrangements that, even in regulatory scenarios that Law and Finance’s school would consider “less than optimal”, are able to generate sustainable economic growth. In this context the VoC approach has been consistently challenging the traditional “one fits all” approach towards capital markets reform usually endorsed by institutions such as the World Bank and the International Monetary Fund, as well as by many scholars and capital markets regulators associated with La Porta’s Law and Finance School. As any theoretical framework, however, the VoC approach also faces its own challenges and still lacks the scientific maturity achieved by the Law and Finance School. Consequently a conciliation between the relational view of the firm proposed by the VoC approach and the overview of corporate governance practices throughout the world presented by the Law and Finance School would be instrumental to construe a more clear understanding of the competitive advantages generated by certain sets of institutions and, at the same time, more accurately assess impacts of reforms that, even if implemented with the legitimate goal of promoting firms’ transparency and higher corporate governance standards, may counter-intuitively generate unprecedented corporate and capital markets crisis. By analyzing two concepts proposed by Ronald J. Gilson, Henry Hansmann and Mariana Pargendler that have an apparent fundamental link to La Porta’s school of Law and Finance (i.e. Olson Problem and Regulatory Dualism) through a varieties of capitalism approach, this study aims at rethinking the traditional “one fits all” approach towards capital markets reform and taking a further step in the direction of conciliating the VoC approach with La Porta’s Law and Finance School. The analysis proposed in this article considers corporate and capital markets reforms in Germany between 1950 and 1997 (the year of creation of the Neuer Market) and also takes into consideration underlying economic factors of the German market economy, which ultimately contributed to the collapse of the Neuer Markt on late 2001.