Advanced Search
MyIDEAS: Login

Regulatory choices in global financial markets – restoring the role of aggregate utility in the shaping of market supervision

Contents:

Author Info

  • Granlund, Peik

    () (FSA/Bank of Finland)

Registered author(s):

    Abstract

    In financial market studies, public supervision has rarely been found to have any effects on financial market development. This is true, even though the primary objective of supervisory legislation is the limitation of market failures and externalities. Studies conducted by eg the World Bank and La Porta & al imply that whereas private enforcement contributes to financial market development, there is limited evidence that public supervision does the same. The objective of the paper is to empirically investigate the relation between public supervision and financial market development. This is done by focusing on major legislative features directing the supervisor and hence affecting market participant activities. The markets investigated comprise banks, investment firms, investment fund companies and listed companies in the United States, United Kingdom, Sweden, Finland, Poland and Estonia for the years 1996 to 2005. The results suggest that certain features of public supervision correlate with financial market development. Strong legal obligations for the supervisor to develop legislation correlate significantly with higher company market values. Emphasizing economic aspects in the formulation of supervisory objectives corresponds with higher market profitability. Furthermore, severe monetary sanctions applicable to company directors correlate negatively with market growth. Unexpectedly, the same is true for a high degree of supervisory independence. The results imply links between public supervision and financial market development in a manner not always in line with previous research. Why this is the case, requires further investigation. One possible explanation may be methodological, based on the fact that in the present study legislative features are perceived in a conceptual rather than a technical manner.

    Download Info

    If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
    File URL: http://www.suomenpankki.fi/en/julkaisut/tutkimukset/keskustelualoitteet/Documents/0801netti.pdf
    Download Restriction: no

    Bibliographic Info

    Paper provided by Bank of Finland in its series Research Discussion Papers with number 1/2008.

    as in new window
    Length: 36 pages
    Date of creation: 01 Jan 2008
    Date of revision:
    Handle: RePEc:hhs:bofrdp:2008_001

    Contact details of provider:
    Postal: Bank of Finland, P.O. Box 160, FI-00101 Helsinki, Finland
    Web page: http://www.suomenpankki.fi/en/
    More information through EDIRC

    Related research

    Keywords: financial institution; regulation; supervision; utility;

    Find related papers by JEL classification:

    This paper has been announced in the following NEP Reports:

    References

    References listed on IDEAS
    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
    as in new window
    1. Rafael Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2006. "What Works in Securities Laws?," Journal of Finance, American Finance Association, vol. 61(1), pages 1-32, 02.
    2. Demirguc-Kunt, Asli & Huizinga, Harry, 2000. "Financial structure and bank profitability," Policy Research Working Paper Series 2430, The World Bank.
    3. A. Mitchell Polinsky & Steven Shavell, 1999. "The Economic Theory of Public Enforcement of Law," NBER Working Papers 6993, National Bureau of Economic Research, Inc.
    4. Pagano, Marco & Volpin, Paolo, 2002. "The Political Economy of Finance," CEPR Discussion Papers 3231, C.E.P.R. Discussion Papers.
    5. Carlin, Wendy & Mayer, Colin, 1999. "Finance, Investment and Growth," CEPR Discussion Papers 2233, C.E.P.R. Discussion Papers.
    6. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
    7. Udaibir S. Das & Marc Quintyn & Kina Chenard, 2004. "Does Regulatory Governance Matter for Financial System Stability? An Empirical Analysis," IMF Working Papers 04/89, International Monetary Fund.
    8. Thorsten Beck & Ross Levine, 2003. "Legal Institutions and Financial Development," NBER Working Papers 10126, National Bureau of Economic Research, Inc.
    9. Alexander Dyck & Luigi Zingales, 2002. "Private Benefits of Control: An International Comparison," NBER Working Papers 8711, National Bureau of Economic Research, Inc.
    10. James R. Barth & Gerard Caprio, Jr. & Ross Levine, 2002. "Bank Regulation and Supervision: What Works Best?," NBER Working Papers 9323, National Bureau of Economic Research, Inc.
    11. Rajan, Raghuram G. & Zingales, Luigi, 2003. "The great reversals: the politics of financial development in the twentieth century," Journal of Financial Economics, Elsevier, vol. 69(1), pages 5-50, July.
    12. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," CID Working Papers 49, Center for International Development at Harvard University.
    13. Richard A. Posner, 1974. "Theories of Economic Regulation," NBER Working Papers 0041, National Bureau of Economic Research, Inc.
    14. Michael Taylor & Marc Quintyn, 2002. "Regulatory and Supervisory Independence and Financial Stability," IMF Working Papers 02/46, International Monetary Fund.
    15. Djankov, Simeon & McLiesh, Caralee & Ramalho, Rita Maria, 2006. "Regulation and growth," Economics Letters, Elsevier, vol. 92(3), pages 395-401, September.
    16. Michael Taylor & Marc Quintyn & Eva H. G. Hüpkes, 2005. "The Accountability of Financial Sector Supervisors: Principles and Practice," IMF Working Papers 05/51, International Monetary Fund.
    17. Katharina Pistor & Martin Raiser & Stanislaw Gelfer, 2000. "Law and Finance in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 325-368, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Lists

    This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

    Statistics

    Access and download statistics

    Corrections

    When requesting a correction, please mention this item's handle: RePEc:hhs:bofrdp:2008_001

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Minna Nyman).

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If references are entirely missing, you can add them using this form.

    If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.