In the postwar period, systems of corporate finance and governance have emerged in the United States, Japan, and Germany that are dramatically different from one another. To date, there has been little focus on why. Stephen Prowse argues that differences in three aspects of the legal and regulatory environments in these countries are responsible. First, the severity of legal and regulatory restraints on financial institutions being "active" investors in firms. Second, the degree to which corporate securities markets are suppressed by regulation. Finally, the degree to which securities markets are "passively" suppressed by the absence of mandated disclosure requirements. ; Prowse compares the merits of each system and argues that the U.S. system may be more favorable to the growth of high-technology firms. He discusses the future evolution of each system. The German and Japanese regulatory environments are changing rapidly to increase the role of securities markets in corporate finance. The U.S. environment is also changing to give financial institutions more latitude to be active investors in firms. Over the long term, the regulatory environments of all three countries appear to be converging. The focal point of this convergence is an entirely new environment in which financial institutions are free to be active investors and corporate securities markets are unhindered by regulatory obstacles.
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Carney, M. & Gedajlovic, E.R., 2001.
"Organisational Path-Dependence and Institutional Environment,"
Research Paper
ERS-2001-07-STR Revision_, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni.
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