Regulatory Visions and the State in E. Asia: The Irrational Investor Problem in the Comparative Politics of Finance

Despite the marked transformation in E. Asia’s financial systems, regulators continue to employ hard paternalistic approaches to their stock markets that are viewed as counterproductive to their development. This article argues that the persistence of hard paternalistic regulatory practices can be explained by a regulatory vision—a common analytical framework to order complex uncertain environments that serve as regulatory first principles—centered on an irrational investor. A regulatory vision works alongside pressures emanating from foreign investment, state capitalism, and state-business relations. This understanding of investor rationality is in marked contrast to a liberal market variant, which emphasizes a rational investor, and thus provides a distinctive comparative lens to understand regulatory behavior in a moment of global financial hybridization. The study draws on over 90 elite interviews of senior regulators, stock exchange officers, and market practitioners conducted in China, Japan, Korea, and Taiwan, from 2015 to 2019.