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Financial markets versus institutions in European countries: Influence of culture and other national characteristics

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  • Aggarwal, Raj
  • Goodell, John W.

Abstract

While it is clear that some countries are bank oriented and others rely more on equity financing, there is little research on the degree to which the national architecture for financial intermediation is determined by legal, cultural, and other national characteristics. Using panel analysis of data for a recent eleven-year period for nineteen major European countries, this paper documents that the architecture of financial intermediation is influenced by national cultural, political, and economic factors. Specifically, we provide robust evidence that a greater predilection for market financing over bank financing is associated with higher levels of power distance, concentration in equity markets, control of corruption, efficiency of debt enforcement; and the adoption of the euro. Lower predilection for equity financing is associated with an English legal origin, greater uncertainty avoidance, and greater political legitimacy. Our results should be of great interest to managers and policy makers and to scholars interested in the relationship of culture, political economy, and financial intermediation.

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Bibliographic Info

Article provided by Elsevier in its journal International Business Review.

Volume (Year): 19 (2010)
Issue (Month): 5 (October)
Pages: 502-520

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Handle: RePEc:eee:iburev:v:19:y:2010:i:5:p:502-520

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Keywords: Banks Comparative financial systems Culture Financial institutions Financial markets Legal traditions Power distance Property rights Social trust Universal banks Uncertainty avoidance;

References

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Cited by:
  1. Frijns, Bart & Gilbert, Aaron & Lehnert, Thorsten & Tourani-Rad, Alireza, 2013. "Uncertainty avoidance, risk tolerance and corporate takeover decisions," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2457-2471.
  2. Apostolov, Mico, 2011. "Governance and enterprise restructuring - the case of Macedonia," MPRA Paper 30812, University Library of Munich, Germany.
  3. Baxamusa, Mufaddal & Jalal, Abu, 2014. "Does religion affect capital structure?," Research in International Business and Finance, Elsevier, vol. 31(C), pages 112-131.
  4. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Factor Markets Working Papers 123, Centre for European Policy Studies.
  5. Arosa, Clara Maria Verduch & Richie, Nivine & Schuhmann, Peter W., 2014. "The impact of culture on market timing in capital structure choices," Research in International Business and Finance, Elsevier, vol. 31(C), pages 178-192.
  6. Stone, Zita & Filippaios, Fragkiskos & Stoian, Carmen, 2014. "Equity culture development in Central and Eastern Europe: The role of institutional and managerial factors," Research in International Business and Finance, Elsevier, vol. 31(C), pages 234-263.
  7. Curtiss, Jarmila, 2012. "Determinants of Financial Capital Use: Review of theories and implications for rural businesses," Working Papers 122846, Factor Markets, Centre for European Policy Studies.
  8. Bert Scholtens & Riikka Sievänen, 2013. "Drivers of Socially Responsible Investing: A Case Study of Four Nordic Countries," Journal of Business Ethics, Springer, vol. 115(3), pages 605-616, July.

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