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Market- vs. bank-based financial systems: do investor rights really matter?

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  • Ozgur Emre Ergungor

Abstract

Why are common-law countries market-dominated and civil-law countries bank-dominated when either financial structure can promote economic growth? This paper provides an explanation tied to legal traditions. Civil-law courts have been less effective in resolving conflicts than common-law courts because civil-law judges traditionally refrain from interpreting the codes and creating new rules. Banks can induce borrowers to honor their obligations by threatening to withhold services that only banks can provide.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0101R.

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Date of creation: 2002
Date of revision:
Handle: RePEc:fip:fedcwp:0101

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Keywords: Comparative law ; Financial markets;

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References

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  1. Boot, Arnoud W A & Greenbaum, Stuart I & Thakor, Anjan V, 1993. "Reputation and Discretion in Financial Contracting," American Economic Review, American Economic Association, vol. 83(5), pages 1165-83, December.
  2. Raghuram G. Rajan & Luigi Zingales, 2001. "The Great Reversals: The Politics of Financial Development in the 20th Century," CRSP working papers 526, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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    • Rafael La Porta & Florencio Lopez-de-Silane & Andrei Shleifer & Robert W. Vishny, 1996. "Law and Finance," NBER Working Papers 5661, National Bureau of Economic Research, Inc.
    • Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  7. O. Emre Ergungor, 2001. "Theories of loan commitments: a literature review," Economic Review, Federal Reserve Bank of Cleveland, issue Q III, pages 2-19.
  8. Levine, Ross, 1999. "Law, Finance, and Economic Growth," Journal of Financial Intermediation, Elsevier, vol. 8(1-2), pages 8-35, January.
  9. Anil Kashyap & Raghuram Rajan & Jeremy S. Stein, 1998. "Banks as liquidity providers: an explanation for the co-existence of lending and deposit-taking," Proceedings 582, Federal Reserve Bank of Chicago.
  10. Stewart C. Myers & Raghuram G. Rajan, 1995. "The Paradox of Liquidity," NBER Working Papers 5143, National Bureau of Economic Research, Inc.
  11. Boot, Arnoud W. A. & Thakor, Anjan V. & Udell, Gregory F., 1991. "Credible commitments, contract enforcement problems and banks: Intermediation as credibility assurance," Journal of Banking & Finance, Elsevier, vol. 15(3), pages 605-632, June.
  12. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  13. Levine, Ross, 1998. "The Legal Environment, Banks, and Long-Run Economic Growth," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 30(3), pages 596-613, August.
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Cited by:
  1. Iancu, Aurel, 2013. "Financialisation: Structure, Extent, Consequences," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 172-192, June.
  2. IANCU, Aurel, 2013. "Extending Financialisation and Increasing Fragility of the Financial System," Working Papers of National Institute of Economic Research 130307, National Institute of Economic Research.

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