Authors: Chia-Hsing Li, Gary
Compared to private law systems, administrative regulation of capital markets has arisen very recently to tackle new challenges. However, in the wake of the financial crisis of 2007–08, it is proven that administrative regulation is not perfect. Strategy of governance of capital markets shall be adjusted. To this end, the present study examines most literature and theoretical foundations of a transaction cost approach for selecting optimum governance of capital markets. This is based on answers of two questions: (1) what the transaction cost approach is, and (2) how this approach is applied to selecting optimum governance of capital markets. In the light of this approach, the optimum governance of capital markets is a transaction-costs-minimum hybrid of administrative regulation and private law systems. This is because both of them have their own strengths and weaknesses, as well as they have some differences and complementarities between each other. However, this hybrid might be different in different countries and even difficult to be found in transnational capital markets, so further empirical research, whether quantitative or qualitative, on selection of optimum governance in different capital markets is needed.
Keywords: Transaction Cost Approach; Governance of Capital Markets; Administrative Regulation; Private Law Systems