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Corporate finance in international perspective: legal and regulatory influences on financial system development

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  • Stephen D. Prowse
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    Abstract

    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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    File URL: http://www.dallasfed.org/assets/documents/research/er/1996/er9603a.pdf
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    Bibliographic Info

    Article provided by Federal Reserve Bank of Dallas in its journal Economic and Financial Policy Review.

    Volume (Year): (1996)
    Issue (Month): Q III ()
    Pages: 2-15

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    Handle: RePEc:fip:fedder:y:1996:i:qiii:p:2-15

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    Keywords: Corporations - Finance ; International finance;

    References

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    1. Bhide, Amar, 1993. "The hidden costs of stock market liquidity," Journal of Financial Economics, Elsevier, vol. 34(1), pages 31-51, August.
    2. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
    3. Franklin Allen & Douglas Gale, 1995. "Universal banking, intertemporal risk smoothing, and European financial integration," Working Papers 95-6, Federal Reserve Bank of Philadelphia.
    4. Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
    5. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1993. "The Choice Between Public and Private Debt: An Analysis of Post-Deregulation Corporate Financing in Japan," NBER Working Papers 4421, National Bureau of Economic Research, Inc.
    6. Mark Carey S. & Stephen Prowse & John Rea & Gregory Udell, 1993. "The economics of the private placement market," Staff Studies 166, Board of Governors of the Federal Reserve System (U.S.).
    7. Frank R. Lichtenberg & George. M Pushner, 1995. "Ownership Structure and Corporate Performance in Japan," NBER Working Papers 4092, National Bureau of Economic Research, Inc.
    8. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, vol. 99(4), pages 689-721, August.
    9. George W. Fenn & Nellie Liang & Stephen Prowse, 1995. "The economics of the private equity market," Staff Studies 168, Board of Governors of the Federal Reserve System (U.S.).
    10. Steven N. Kaplan, 1994. "Top Executive Rewards and Firm Performance: A Comparison of Japan and the U.S," NBER Working Papers 4065, National Bureau of Economic Research, Inc.
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    Cited by:
    1. Michael Carney, 2008. "The many futures of Asian business groups," Asia Pacific Journal of Management, Springer, vol. 25(4), pages 595-613, December.
    2. Claudia M. Buch, 2000. "Financial Market Integration in the US: Lessons for Europe?," Kiel Working Papers 1004, Kiel Institute for the World Economy.
    3. Maixé-Altés, J. Carles & Iglesias, Emma M., 2009. "Domestic monetary transfers and the inland bill of exchange markets in Spain (1775-1885)," Journal of International Money and Finance, Elsevier, vol. 28(3), pages 496-521, April.

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