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Financial Sector, Regulation and Corporate Performance: The Case of Spain

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Carbo, Santiago () (University of Granada)

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Abstract

With the advent of the EMU and the widespread financial integration many efforts have been undertaken by European financial authorities. In the case of Spain, there are many regulatory and institutional factors that condition a deeper financial integration. This paper analyzes the relationships between corporate performance and the financial sector. The aim of the paper is twofold. Firstly, it seeks to overview the main characteristics of regulation and financial structure in Spain. On one hand, the dynamic role played by the Bank of Spain in supervising banks and the implications of a recent Financial Act (Ley Financiera) are underlined. On the other hand, regarding financial markets issues, we examine the importance of the National Financial Markets Commission (CNMV) as well as the medium-term effects of the Financial Markets Reform Act of 1998. Secondly, the paper offer a synthesis of the main indicators illustrating the relationships between financial markets and corporate performance, which is markedly influenced by the bank-based profile of the Spanish financial system and the universal nature of bank business. Financial deepening is also presented as one of the main facts explaining corporate financing, with an enormous development of assets such as mutual funds, a trend that has been partially instigated by a non-neutral income tax policy. Besides, some other indicators that reflect the state and the structure of corporate finance are computed and presented including market capitalization issues, lending and other pricing spreads or the cost of the use of financial capital. The paper ends with an empirical analysis of the impact of bank deepening and bank dependence on economic growth in Spain

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Paper provided by United Nations University, Institute for New Technologies in its series EIFC - Technology and Finance Working Papers with number 17.

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Date of creation: 2003
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Handle: RePEc:dgr:unutaf:eifc03-17

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Keywords: European Integration; Legislation; Financial Services; Corporate Performance; Spain; Europe;

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  2. Franklin Allen & Anthony M. Santomero, 1999. "What Do Financial Intermediaries Do?," Center for Financial Institutions Working Papers 99-30, Wharton School Center for Financial Institutions, University of Pennsylvania. [Downloadable!]
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  3. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank. [Downloadable!]
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  4. Nicola Cetorelli & Michele Gambera, 1999. "Banking market structure, financial dependence and growth: international evidence from industry data," Working Paper Series WP-99-8, Federal Reserve Bank of Chicago. [Downloadable!]
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  5. Strahan, Philip E. & Weston, James P., 1998. "Small business lending and the changing structure of the banking industry1," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 821-845, August. [Downloadable!] (restricted)
  6. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June. [Downloadable!] (restricted)
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  7. Altman, Edward I. & Saunders, Anthony, 2001. "An analysis and critique of the BIS proposal on capital adequacy and ratings," Journal of Banking & Finance, Elsevier, vol. 25(1), pages 25-46, January. [Downloadable!] (restricted)
  8. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July. [Downloadable!] (restricted)
  9. Houston, Joel F. & James, Christopher, 1998. "Do bank internal capital markets promote lending?," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 899-918, August. [Downloadable!] (restricted)
  10. Levine, Ross & Loayza, Norman & Beck, Thorsten, 2000. "Financial intermediation and growth: Causality and causes," Journal of Monetary Economics, Elsevier, vol. 46(1), pages 31-77, August. [Downloadable!] (restricted)
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