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Opaque Markets and Rapid Growth: the Superiority of Bank-Centered Financial Systems for Developing Nations

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  • Rodney Wallace
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    Abstract

    This paper analyzes the relationship between private investment incentives and the speed at which information regarding investment becomes public. In a developed country context, public information plays a limited role in creating investment incentives. However, in an environment of rapid economic development, firms only have a strong incentive to invest if information only becomes public after a long lag. Thus, the public disclosure that is an integral part of effective stock markets inhibits investment in developing countries despite not being problematic in developed nations. On the other hand, bank-centered financial systems limit the amount of public information and are therefore better suited to developing countries.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp222.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 222.

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    Length: pages
    Date of creation: 01 Jul 1999
    Date of revision:
    Handle: RePEc:wdi:papers:1999-222

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