Katharina Pistor | Columbia University (original) (raw)

Papers by Katharina Pistor

SSRN-Investing in Insider-Dominated Firms: A Study of Russian Voucher Privatization Funds by Roma... more SSRN-Investing in Insider-Dominated Firms: A Study of Russian Voucher Privatization Funds by Roman Frydman, Katharina Pistor, Andrzej Rapaczynski. ...

SSRN Electronic Journal, 2000

In Anglo-American law, fiduciary duty is the core legal concept to address conflicts of interest ... more In Anglo-American law, fiduciary duty is the core legal concept to address conflicts of interest of directors/managers and shareholders. The concept is developed and constantly refined by courts in the process of adjudication. By contrast, most civil law jurisdictions, including many transition economies, either lack the procedural rules that would enable parties to bring such cases to courts, or have not developed a sufficient body of case law to determine the contents and meaning of this concept. This paper asks, whether courts should be the primary lawmakers and law enforcers concerning the duty of loyalty. Based on our theory of the incompleteness of law, this paper argues that given a highly incomplete law, allocating lawmaking and law enforcement to courts is optimal when the expected harm does not have strong externalities. Breaching fiduciary duty is such an area, as "only" shareholders of that company, not the investing public at large will be harmed. While courts in transition economies may have difficulties living up to the task, we propose that for this particular area of the law, there are no better lawmaking and law enforcement mechanisms available. The case law they will produce is most likely to diverge from case law developed elsewhere, but this result is inevitable given incompleteness of law.

This paper offers the first comprehensive analysis of legal change in the protection of sharehold... more This paper offers the first comprehensive analysis of legal change in the protection of shareholder and creditor rights in transition economies and its impact on the propensity of firms to raise external finance. Following La Porta et al. (1998), the paper constructs an expanded set of legal indices to capture a range of potential conflicts between different stakeholders of the firm. It supplements the analysis of the law on the books with an analysis of the effectiveness of legal institutions. Our main finding is that the effectiveness of legal institutions has a much stronger impact on external finance than does the law on the books, despite legal change that has substantially improved shareholder and creditor rights. This finding supports the proposition that legal transplants and extensive legal reforms are not sufficient for the evolution of effective legal and market institutions.

How does the quality of national institutions that enforce rule of law influence international tr... more How does the quality of national institutions that enforce rule of law influence international trade? Anderson and Marcouiller (2001) argue that bad institutions located in the importer’s country deter international trade because they enable economic predators to steal and extort at the importer’s border. We complement this research and show how good institutions located in the exporter’s country enhance international trade and, in particular, trade in complex products whose characteristics are difficult to fully specify in a contract. We build a model in which both exporter and importer institutions impact both international and domestic transaction costs in complex and simple product markets. While international transaction costs affect the costs of trade, domestic transaction costs affect complex and simple products differently, thereby changing comparative advantage. We find strong evidence for the model’s predictions: most notably, the quality of exporter institutions is most i...

SSRN Electronic Journal, 2000

ABSTRACT This paper develops the normative concept of “regulatory capabilities.” It asserts that ... more ABSTRACT This paper develops the normative concept of “regulatory capabilities.” It asserts that nobody – individuals, groups, or entities – should be subjected to a regulatory regime without some freedom to determine its nature. Self-determination in this context means the ability to accept or reject a regulatory regime imposed by others or to develop viable alternative approaches. We use the term “regulatory capabilities” to capture the importance of enabling conditions for regulatory self-determination. This is particularly important in the transnational context where private, hybrid public–private, and public actors compete for influence, shape domestic regulation, and, in doing so, limit the scope for democratic self-governance. In short, this paper seeks to contribute to the general debate on the normative foundations of and the requisite conditions for transnational regulation and governance.

SSRN Electronic Journal, 2000

This paper develops a conceptual framework for the analysis of legal institutions. It argues that... more This paper develops a conceptual framework for the analysis of legal institutions. It argues that law is inherently incomplete and that the incompleteness of law has a profound impact on the design of lawmaking and law enforcement institutions. When law is incomplete, residual lawmaking powers must be allocated; and enforcement agents have to be vested with law enforcement powers. The optimal allocation of lawmaking and law enforcement powers under incomplete law is analyzed with a focus on the legislature, regulators and courts as possible lawmakers, and courts as well as regulators as possible law enforcers. The timing and process of lawmaking and law enforcement differs across these agents. Legislatures are ex ante, courts are ex post lawmakers, regulators have combine ex ante and ex post lawmaking functions. Courts are reactive law enforcers, while regulators are proactive law enforcers in that -unlike courts -they can initiate enforcement procedures. We argue that the optimal allocation of residual lawmaking and law enforcement powers is determined by the degree and nature of incompleteness of law, the ability to standardize actions that may result in harm, and the magnitude of harm and externalities expected from such actions. Under highly incomplete law, regulators are superior to courts when actions can be standardized and, if allowed to proceed, may create substantial externalities. Otherwise courts are optimal holders of lawmaking and law enforcement powers. We apply this analytical framework to the development of financial market regulation in England since the mid 19th century, with comparative reference to developments in the United States and Germany. The comparative evidence suggests that financial market regulators with both residual lawmaking and proactive law enforcement powers emerged in all three jurisdictions in response to ineffective judicial law enforcement of highly incomplete law.

SSRN Electronic Journal, 2000

ABSTRACT This paper explores the link between legal protections of creditors' and banks&a... more ABSTRACT This paper explores the link between legal protections of creditors' and banks' lending behavior in transition economies. We suggest that banks' lending behavior is determined by legal rules that affect a project's liquidation value and present empirical results consistent with this claim. We find that rules on secured lending and preferential treatment of secured creditors in bankruptcy are positively associated with banks' willingness to lend. By contrast, replacing incumbent management with court appointed receivers negatively affects banks' willingness to lend. We also find that foreign banks are more responsive to legal change than domestic banks. This finding is consistent with the notion that foreign banks are more dependent on formal legal protections than domestic institutions having greater access to relational lending and enforcement practices.

SSRN Electronic Journal, 2000

ABSTRACT Numerous empirical studies have shown that the rule of law is positively associated with... more ABSTRACT Numerous empirical studies have shown that the rule of law is positively associated with a range of desirable outcome variables including GDP levels, financial market development, the rate of investment as well as the volume of trade, human rights, and even with declines in child mortality, to name a few. Most studies are conducted at the country level and aggregate data for ranking countries around the world on the rule of law scale and for compiling outcomes variables. This leaves open the question as to who - within a nation state - benefits from rule of law or specific legal reforms, and who is left out (or might even be negatively affected). In this paper we address the phenomenon that each country has a significant minority, which does not benefit as do others from average improvements in the rule of law - that is, a group of people that seems systematically disenfranchised from the rule of law. We use the status of women in society to explore this issue in greater detail. While not a minority in numerical terms, the status of women in every society lags behind that of men irrespective of a country's rule of law ranking. We show that the status of women in society is relatively weakly associated with various rule of law indices, and that in poor countries this association disappears altogether. Similarly, there is substantial regional variation in the correlation coefficient between rule of law and the status of women in society. Evidence on gender specific legal targeting both at the international and at the country level also suggests that legal instruments as such are not a very powerful tool for changing the status of women in society. We use these findings to probe the implicit social theory of the dominant rule of law paradigm and assess it against the background of established social theories.

This paper examines,the problem of deterrence failure under incomplete law and analyses how this ... more This paper examines,the problem of deterrence failure under incomplete law and analyses how this problem may be addressed by different lawmaking,and law enforcement institutions. We demonstrate that when law is incomplete, i.e. when the law fails to unambiguously state that a particular action will give rise to liability, a legal regime that relies exclusively on courts may suffer from deterrence failure. The reason is that courts are desigend to be reactive law enforcers and take action only after others have brought a case before them, typically ex post. We explain the emergence and of regulators with the greater demand,for proactive enforcement agents who may themselves initiate law enforcement activities even before a harm has been done. Regulators' ability to proactively enforce the law helps mitigate the problem of deterrence failure. However, as further explained in this paper, under certain conditions regulators may suffer from regulatory failure. We discuss several app...

The World Bank Research Observer, 2003

Review of Financial Studies, 2010

... Review of Financial Studies. ... Institution: Google Indexer; Sign In as Personal Subscriber.... more ... Review of Financial Studies. ... Institution: Google Indexer; Sign In as Personal Subscriber. ... How Law Affects Lending. Rainer Haselmann. Johannes Gutenberg University Mainz. Katharina Pistor. Columbia Law School. Vikrant Vig. ...

Review of Economics and Statistics, 2006

How does the quality of national institutions that enforce rule of law influence international tr... more How does the quality of national institutions that enforce rule of law influence international trade? argue that bad institutions located in the importer's country deter international trade because they enable economic predators to steal and extort at the importer's border. We complement this research and show how good institutions located in the exporter's country enhance international trade and, in particular, trade in complex products whose characteristics are difficult to fully specify in a contract. We build a model in which both exporter and importer institutions impact both international and domestic transaction costs in complex and simple product markets. While international transaction costs affect the costs of trade, domestic transaction costs affect complex and simple products differently, thereby changing comparative advantage. We find strong evidence for the model's predictions: most notably, the quality of exporter institutions is most important for enhancing trade in complex product markets and the quality of importer institutions is most important for simple markets.

The Economics of Transition, 2000

Journal of Comparative Economics, 2003

In most countries large business enterprises today are organized as corporations. The corporation... more In most countries large business enterprises today are organized as corporations. The corporation with its key attributes of independent personality, limited liability and free tradeability of shares has played a key role in most developed market economies since the 19th century and has made major inroads in emerging markets. We suggest that the resilience of the corporate form is a function of the adaptability of the legal framework to a changing environment. We analyze a country's capacity to innovate using the rate of statutory legal change, the flexibility of corporate law, and institutional change as indicators. Our findings suggest that origin countries are more innovative than transplant countries. Journal of Comparative Economics 31 (4) (2003) 676-694. Columbia Law School,

The Journal of Asian Studies, 2001

SSRN Electronic Journal, 2000

The World Bank Research Observer, 2003

Review of Financial Studies, 2010

Review of Economics and Statistics, 2006

How does the quality of national institutions that enforce rule of law influence international tr... more How does the quality of national institutions that enforce rule of law influence international trade? argue that bad institutions located in the importer's country deter international trade because they enable economic predators to steal and extort at the importer's border. We complement this research and show how good institutions located in the exporter's country enhance international trade and, in particular, trade in complex products whose characteristics are difficult to fully specify in a contract. We build a model in which both exporter and importer institutions impact both international and domestic transaction costs in complex and simple product markets. While international transaction costs affect the costs of trade, domestic transaction costs affect complex and simple products differently, thereby changing comparative advantage. We find strong evidence for the model's predictions: most notably, the quality of exporter institutions is most important for enhancing trade in complex product markets and the quality of importer institutions is most important for simple markets.

The Economics of Transition, 2000

Journal of Comparative Economics, 2003

The Journal of Asian Studies, 2001