Document Type

Article

Abstract

This article examines the financial crisis of 2008 and connections to corporate finance theory. The financial products and deregulation that led to the crisis were informed by corporate finance theories. These theories include diversification, the capital asset pricing model, and options theory. The theories have a scientific basis but can get deployed (in the form of financial product presentation or policy justification) in ways that deviate from the scientific articulation. The article provides an intellectual history of mainstream corporate finance theory and argues that it, despite the consequences of its misuse, is a valuable scientific achievement and even arguments for its correction (most notably by behavioral finance theorists) do not detract from its value. The debate within corporate finance is used to illustrate the virtues of Enlightenment principles.

Date of Authorship for this Version

1-1-2010

Keywords

Financial crises, Corporations - Finance, Economics, Enlightenment, corporate finance theory, 2008 financial crisis, Corporate Finance, Law

Original Citation

Originally published in Saint Louis University Law Journal, Vol. 54, No. 4, pp. 1257-1275, 2010. Reprinted with permission of the Saint Louis University Law Journal © 2010, St. Louis University School of Law, St. Louis, Missouri.

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