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Comparing financial systems: a structural analysis

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  • Champonnois, Sylvain

Abstract

This paper builds a model of investment and financing that incorporates heterogeneous firms into general equilibrium. In order to characterize the financial structure of an economy, the model connects the share of market finance in total external finance and the distribution of firm sizes into a simple structural equation, with parameters related to the cost of market finance (compared to intermediated finance). We estimate the relative cost of market finance across countries with data on external financing and firm sizes from France, Germany, Italy, Spain and the United Kingdom. Using the structural model, we propose an explanation of the empirical correlation across countries between estimated financing costs and the characteristics of the population of firms based on welfare maximization. JEL Classification: E20, E44, C13

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Bibliographic Info

Paper provided by European Central Bank in its series Working Paper Series with number 0702.

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Date of creation: Dec 2006
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Handle: RePEc:ecb:ecbwps:20060702

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Related research

Keywords: distribution of firm sizes; financing patterns; Heterogeneous firms; structural estimation; welfare analysis;

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References

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  1. Tadesse, Solomon, 2002. "Financial Architecture and Economic Performance: International Evidence," Journal of Financial Intermediation, Elsevier, vol. 11(4), pages 429-454, October.
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Cited by:
  1. Costinot, Arnaud, 2007. "Heterogeneity and Trade," University of California at San Diego, Economics Working Paper Series qt4ns3899g, Department of Economics, UC San Diego.
  2. Russ, Katheryn N. & Valderrama, Diego, 2012. "A theory of bank versus bond finance and intra-industry reallocation," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 652-673.
  3. Solomon, Bernard-Daniel, 2008. "Banks as Better Monitors and Firms' Financing Choices in Dynamic General Equilibrium," MPRA Paper 23958, University Library of Munich, Germany, revised 01 Jun 2010.

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