Paterson, Sarah 
ORCID: 0000-0002-7862-4919
(2017)
The cost of capital – the normative foundation of corporate law: a reply.
European Company and Financial Law Review, 14 (2).
pp. 316-335.
ISSN 1613-2548
Abstract
This essay is a reply to Dr Steffek’s ambitious work, ‘The Cost of Capital – the Normative Foundation of Corporate Law?’ Dr Steffek’s paper identifies that reducing, or minimising, the cost of capital occurs as normative in the Capital Markets Union (‘CMU’) project, but that it appears alongside many other normative concerns. The paper makes a contribution to the CMU literature by promoting minimising the cost of capital to ‘the’ normative concern of CMU. It also makes a contribution to wider corporate law theory by extending its claim beyond CMU. Methodologically the paper supports its claim by a series of careful steps. Three of these are particularly important for the plausibility of the thesis. First, the concept of ‘cost of capital’ is broadly drawn, including costs of production, costs of finance and governance costs. Each of these costs is, in its turn, broadly drawn so that, for example, the costs of mistakes of managers are included as costs of governance and the costs of finance include all ‘associated’ costs of finance such as return on default. Secondly, the paper carefully reconstructs the corporate law rules with which it is primarily concerned, and assesses them against the objective of minimising cost of capital (in its broad sense). Finally, the paper does not dispute that other normative concerns exist, such as protection of consumers, employee protection etc. but it attributes these normative concerns to other areas of the law such as consumer protection law or labour law, or affords them a subsidiary role. The paper is rich, detailed and careful and it is tempting to enter into a meta-analysis of its detailed claims. But instead I have chosen to focus on the central claim of the paper, that ‘the’ normative concern of the CMU project in particular, and of corporate law more generally, is to minimise the cost of capital. I should say at the outset that I have assumed the purpose of identifying a dominant normative concern is to inform policy choices. This essay then proceeds in four stages. First, it considers the case for what a Western ethicist might call a ‘transcendental’ normative concern of corporate law.1 Secondly, it considers the analytical force of Dr Steffek’s conception of ‘cost of capital’ and the challenge with incorporating a number of important externalities within it which would be need to be taken into account in order to determine whether the costs of capital have, in fact, been minimised. Thirdly, it touches briefly on the vexed question of the relationship between law and the cost of finance. Finally, it considers the extent to which minimising the cost of capital should be a dominant normative concern after the financial crisis. The essay then concludes.
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