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The Emergence and Persistence of the Anglo-Saxon and German Financial Systems

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  • Sandeep Baliga

Abstract

We use a moral hazard model to compare monitored (nontraded) bank loans and traded (nonmonitored) bonds as sources of external funds for industry. We contrast the theoretical conditions that favor each system with the historical conditions prevailing when these financial systems evolved during the British and German industrial revolutions. To study persistence, we consider an entry model where financiers take the industrial structure as given when they lend and firms take the financial system as given when they borrow. We show multiple equilibria can exist, compare equilibria in welfare terms, and discuss their robustness to coordination between lenders and borrowers. Copyright 2004, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhg020
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Bibliographic Info

Article provided by Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 17 (2004)
Issue (Month): 1 ()
Pages: 129-163

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Handle: RePEc:oup:rfinst:v:17:y:2004:i:1:p:129-163

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Cited by:
  1. Tarantino, E.T., 2009. "Bankruptcy Law and Corporate Investment Decisions," Discussion Paper 2009-86, Tilburg University, Center for Economic Research.
  2. Katheryn Russ & Diego Valderrama, 2010. "Financial Choice in a Non-Ricardian Model of Trade," Working Papers 109, University of California, Davis, Department of Economics.
  3. Burhop, Carsten, 2006. "Did banks cause the German industrialization?," Explorations in Economic History, Elsevier, vol. 43(1), pages 39-63, January.
  4. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 73-124, March.
  5. Monnet, Cyril & Quintin, Erwan, 2005. "Why do financial systems differ? History matters," Working Paper Series 0442, European Central Bank.
  6. Timothy W. Guinnane, 2001. "Delegated Monitors, Large and Small: The Development of Germany's Banking System, 1800-1914," Working Papers 835, Economic Growth Center, Yale University.
  7. Demid Golikov, 2005. "Financial Intermediary In Monetary Economics: An Excerpt," Macroeconomics 0510018, EconWPA.
  8. Julien Allard & Rodolphe Blavy, 2011. "Market Phoenixes and Banking Ducks Are Recoveries Faster in Market-Based Financial Systems?," IMF Working Papers 11/213, International Monetary Fund.
  9. Franz R. Hahn, 2003. "Financial Development and Macroeconomic Volatility. Evidence from OECD Countries," WIFO Working Papers 198, WIFO.

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