IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this article

Financial markets versus institutions in European countries: Influence of culture and other national characteristics

  • Aggarwal, Raj
  • Goodell, John W.

While it is clear that some countries are bank oriented and others rely more on equity financing, there is little research on the degree to which the national architecture for financial intermediation is determined by legal, cultural, and other national characteristics. Using panel analysis of data for a recent eleven-year period for nineteen major European countries, this paper documents that the architecture of financial intermediation is influenced by national cultural, political, and economic factors. Specifically, we provide robust evidence that a greater predilection for market financing over bank financing is associated with higher levels of power distance, concentration in equity markets, control of corruption, efficiency of debt enforcement; and the adoption of the euro. Lower predilection for equity financing is associated with an English legal origin, greater uncertainty avoidance, and greater political legitimacy. Our results should be of great interest to managers and policy makers and to scholars interested in the relationship of culture, political economy, and financial intermediation.

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.sciencedirect.com/science/article/pii/S0969593109001000
Download Restriction: Full text for ScienceDirect subscribers only

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Article provided by Elsevier in its journal International Business Review.

Volume (Year): 19 (2010)
Issue (Month): 5 (October)
Pages: 502-520

as
in new window

Handle: RePEc:eee:iburev:v:19:y:2010:i:5:p:502-520
Contact details of provider: Web page: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/description#description

Order Information: Postal: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/bibliographic
Web: http://www.elsevier.com/wps/find/journaldescription.cws_home/133/bibliographic

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. Raghuram G. Rajan & Luigi Zingales, 1998. "Which Capitalism? Lessons Form The East Asian Crisis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 11(3), pages 40-48.
  2. Ergungor, O. Emre, 2004. "Market- vs. bank-based financial systems: Do rights and regulations really matter?," Journal of Banking & Finance, Elsevier, vol. 28(12), pages 2869-2887, December.
  3. Bryan W Husted, 1999. "Wealth, Culture, and Corruption," Journal of International Business Studies, Palgrave Macmillan, vol. 30(2), pages 339-359, June.
  4. Alesina, Alberto & Devleeschauwer, Arnaud & Wacziarg, Romain & Kurlat, Sergio & Easterly, William, 2003. "Fractionalization," Scholarly Articles 4553003, Harvard University Department of Economics.
  5. 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.
  6. Thorsten Beck & Asli Demirguc-Kunt & Ross Levine, 2005. "Bank Supervision and Corruption in Lending," NBER Working Papers 11498, National Bureau of Economic Research, Inc.
  7. Oliver Hart, 2001. "Financial Contracting," Harvard Institute of Economic Research Working Papers 1924, Harvard - Institute of Economic Research.
  8. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
  9. Franklin Allen, 2001. "Presidential Address: Do Financial Institutions Matter?," Journal of Finance, American Finance Association, vol. 56(4), pages 1165-1175, 08.
  10. Peter J Buckley, 2002. "Is the International Business Research Agenda Running Out of Steam?," Journal of International Business Studies, Palgrave Macmillan, vol. 33(2), pages 365-373, June.
  11. Marco Pagano & Paolo Volpin, 1999. "The Political Economy of Corporate Governance," CSEF Working Papers 29, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 01 Jul 2005.
  12. Rafael La Porta & Florencio Lopez-De-Silanes & Andrei Shleifer, 2002. "Government Ownership of Banks," Journal of Finance, American Finance Association, vol. 57(1), pages 265-301, 02.
  13. Aggarwal, Raj & Goodell, John W., 2009. "Markets versus institutions in developing countries: National attributes as determinants," Emerging Markets Review, Elsevier, vol. 10(1), pages 51-66, March.
  14. 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.
  15. Guiso, Luigi & Sapienza, Paola & Zingales, Luigi, 2000. "The Role of Social Capital In Financial Development," CEPR Discussion Papers 2383, C.E.P.R. Discussion Papers.
  16. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2006. "Debt Enforcement Around the World," NBER Working Papers 12807, National Bureau of Economic Research, Inc.
  17. Boot, Arnoud W A & Thakor, Anjan V, 1997. "Financial System Architecture," Review of Financial Studies, Society for Financial Studies, vol. 10(3), pages 693-733.
  18. Dermine, Jean & Hillion, Pierre (ed.), 1999. "European Capital Markets with a Single Currency," OUP Catalogue, Oxford University Press, number 9780198295396, May.
  19. Solomon Tadesse & Chuck Kwok, 2005. "National Culture and Financial Systems," William Davidson Institute Working Papers Series wp884, William Davidson Institute at the University of Michigan.
  20. Kaufmann, Daniel & Kraay, Aart & Zoido-Lobaton, Pablo, 1999. "Governance matters," Policy Research Working Paper Series 2196, The World Bank.
  21. Solomon Tadesse, 2001. "Financial Architecture and Economic Performance: International Evidence," William Davidson Institute Working Papers Series 449, William Davidson Institute at the University of Michigan.
  22. Hart, Oliver, 1995. "Firms, Contracts, and Financial Structure," OUP Catalogue, Oxford University Press, number 9780198288817, May.
  23. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, vol. 47(4), pages 1367-400, September.
  24. Delerue, Hélène & Simon, Eric, 2009. "National cultural values and the perceived relational risks in biotechnology alliance relationships," International Business Review, Elsevier, vol. 18(1), pages 14-25, February.
  25. Raj Aggarwal & Shelly Zhao, 2007. "The Diversification Discount Puzzle: Empirical Evidence for a Transactions Cost Resolution," The Institute for International Integration Studies Discussion Paper Series iiisdp222, IIIS.
  26. Léonce Ndikumana, 2003. "Financial Development, Financial Structure and Domestic Investment: International Evidence," Working Papers wp16, Political Economy Research Institute, University of Massachusetts at Amherst.
  27. Gordon Redding, 2005. "The thick description and comparison of societal systems of capitalism," Journal of International Business Studies, Palgrave Macmillan, vol. 36(2), pages 123-155, March.
  28. Harrison Hong & Jeffrey D. Kubik & Jeremy C. Stein, 2001. "Social Interaction and Stock-Market Participation," NBER Working Papers 8358, National Bureau of Economic Research, Inc.
  29. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2005. "Culture, Law, and Corporate Governance," International Review of Law and Economics, Elsevier, vol. 25(2), pages 229-255, June.
  30. Licht, Amir N. & Goldschmidt, Chanan & Schwartz, Shalom H., 2007. "Culture rules: The foundations of the rule of law and other norms of governance," Journal of Comparative Economics, Elsevier, vol. 35(4), pages 659-688, December.
  31. Franklin Allen, 2001. "Do Financial Institutions Matter?," Center for Financial Institutions Working Papers 01-04, Wharton School Center for Financial Institutions, University of Pennsylvania.
  32. 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.
  33. William R. White, 1998. "The coming transformation of continental european banking?," BIS Working Papers 54, Bank for International Settlements.
  34. Ram T. S. Ramakrishnan & Anjan V. Thakor, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 415-432.
  35. Myers, Stewart C., 1977. "Determinants of corporate borrowing," Journal of Financial Economics, Elsevier, vol. 5(2), pages 147-175, November.
  36. Randall K. Morck & David A. Stangeland & Bernard Yeung, 1998. "Inherited Wealth, Corporate Control and Economic Growth: The Canadian Disease," NBER Working Papers 6814, National Bureau of Economic Research, Inc.
  37. Magnusson, Peter & Baack, Daniel W. & Zdravkovic, Srdan & Staub, Karin M. & Amine, Lyn S., 2008. "Meta-analysis of cultural differences: Another slice at the apple," International Business Review, Elsevier, vol. 17(5), pages 520-532, October.
  38. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  39. Kathy Fogel, 2006. "Oligarchic family control, social economic outcomes, and the quality of government," Journal of International Business Studies, Palgrave Macmillan, vol. 37(5), pages 603-622, September.
  40. Williamson, Oliver E, 1988. " Corporate Finance and Corporate Governance," Journal of Finance, American Finance Association, vol. 43(3), pages 567-91, July.
Full references (including those not matched with items on IDEAS)

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

When requesting a correction, please mention this item's handle: RePEc:eee:iburev:v:19:y:2010:i:5:p:502-520. See general information about how to correct material in RePEc.

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

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.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.