CHAPTER FOUR CORPORATE FINANCE ISSUES: FINANCIAL INNOVATION, SECURITISATION AND CREDIT RATING AGENCIES
4.1 – Introduction The identification of corporate finance themes within financial scandals led, in chapter two, to focus on two main enquiries. Firstly, different patterns of financial development were analysed as a first theme underlying the explanation of financial scandals, and a line of demarcation was drawn between capital market finance on one hand and bank finance on the other. This differentiation retains centrality within this chapter because the legal issues discussed herein are concerned with capital market finance transactions and more broadly with the regulatory framework pertaining to stock market operations. The second theme identified in chapter two introduced the discussion on the role played by regulation in the context of crises, and focused on specific regulatory patterns that have been endorsed within the financial services industry over the last three decades. The enquiry pointed more specifically to three regulatory features (self-regulation, financial innovation, and disclosure paradigm), which in the context of the present chapter provide the background for the analysis of the more specific issues. Thus, the aim of this chapter is to investigate the mechanics of two fundamental legal issues that in different ways underscored the excesses of the past decade and flowed into the most spectacular financial crisis since the Great Crash of 1929. The examination focuses on securitisation and credit rating agencies which are intertwined processes of financial markets and represent key stages of many transactions carried out at global level. Financial innovation and the development of more complicated securitised products have been recognised as central causes of the global financial crisis and their employment and sophistication were further fuelled in the years preceding the crisis due to persisting macroeconomic
