The Endogeneity of Law and the Constitution of the German Leasing Market: A Field-Level Perspective

Friday, 3 July 2015: 8:30 AM-10:00 AM
TW1.1.03 (Tower One)
Jan Friedrich, Goethe Universitaet, Frankfurt am Main, Germany
Matthias Thiemann, Goethe Universitaet Frankfurt, Frankfurt am Main, Germany; Frankfurt University, Frankfurt, Germany
A distorted assessment of risk, based upon misleading credit ratings, was one of the main causes of the financial crisis. One mechanism responsible for biased credit ratings is off-balance-sheet financing techniques, used by corporations and banks to optimize balance sheets in order to increase credit ratings. As a reaction to the crisis, techniques of off-balance sheet financing came under increasing scrutiny and many projects of reform to limit their volume were initiated (IASB, 2009; IASB, 2013, BMJ, 2009, Hughes, 2012). Nevertheless, the German leasing market, in particular operational leases still offer an off-balance-sheet effect, despite regulatory initiatives by the IASB and the German ministry of finance (Hartmann-Wendels 2012). In this paper, we analyze the development of the German lease market from a field perspective (Fligstein and McAdam (2012), however explicitly conceptualizing law as an endogenous influence factor (Edelman and Stryker 2005) that financial actors seek to shape to their advantage. Based on extensive documentary analysis and 15 semi-structured expert interviews with auditors, lessors and influential stakeholder of the lease industry in Germany we trace how the leasing industry and its regulatory advisors managed to mitigate the impact of regulatory initiatives and to reconfigure their offer to corporations to maintain the attractive off-balance sheet status post-crisis. We place this development in historical perspective, showing how the German lease sector influenced the regulatory frame in West Germany since the early 70’s in its favor to maintain the off-balance-sheet status of lease contracts.