This paper looks at empirical evidence and economic theory in order to find some guidelines for building the institutions of a financial system. It argues that in the countries in transition, priority should be given to stimulating information generation about investment opportunities, and to ensuring substantial external evaluation of companies' potential. The actual evolution of financial systems in Central and East European countries shows, however, that banks are playing an increasingly important role, and that very close links are developing between the banking and the industrial sectors. If banks are to become not only privileged creditors, but also shareholders of firms, the information needed for efficient restructuring may become the victim of excessive commitment.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
1062.
Find related papers by JEL classification: G1 - Financial Economics - - General Financial Markets P34 - Economic Systems - - Socialist Institutions and Their Transitions - - - Finance P50 - Economic Systems - - Comparative Economic Systems - - - General
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