Essays in Institutional Risk

Isn’t it a paradox that the links between law, politics and corporate finance is are a young area of research in Finance? Yet it is fundamental to understand the functioning of markets. Pat Akey, is fascinated by the way political and legal institutions affect the functioning of markets and the way that firms act. He therefore wished to fill the gap of knowledge in the field, focusing his thesis on institutional risks. Firms in all countries face macroeconomic and political risks. Mitigating these risks requires a better understanding of how the legal and political environments interact and how these institutions affect firms’ and politicians’ incentives. Indeed, markets constantly react to different signals, many of which come from the political sphere. Differences in political structures affect incentives, which in turn, give rise to differences in government policy. This explains why reliable institutions are thought to have a positive impact on the outcome and implementation of economic policies and the efficiency of legal enforcement. Pat Akey’s work helps showcase the benefits of interdisciplinary research.