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The Emergence and Persistence of the Anglo-Saxon and German Financial Systems

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  • Sandeep Baliga

Abstract

We use a moral hazard model to compare monitored (nontraded) bank loans and traded (nonmonitored) bonds as sources of external funds for industry. We contrast the theoretical conditions that favor each system with the historical conditions prevailing when these financial systems evolved during the British and German industrial revolutions. To study persistence, we consider an entry model where financiers take the industrial structure as given when they lend and firms take the financial system as given when they borrow. We show multiple equilibria can exist, compare equilibria in welfare terms, and discuss their robustness to coordination between lenders and borrowers. Copyright 2004, Oxford University Press.

Suggested Citation

  • Sandeep Baliga, 2004. "The Emergence and Persistence of the Anglo-Saxon and German Financial Systems," Review of Financial Studies, Society for Financial Studies, vol. 17(1), pages 129-163.
  • Handle: RePEc:oup:rfinst:v:17:y:2004:i:1:p:129-163
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    Cited by:

    1. Gary Gorton & Andrew Winton, 2002. "Financial Intermediation," Center for Financial Institutions Working Papers 02-28, Wharton School Center for Financial Institutions, University of Pennsylvania.
    2. Monnet, Cyril & Quintin, Erwan, 2007. "Why do financial systems differ? History matters," Journal of Monetary Economics, Elsevier, pages 1002-1017.
    3. Crafts, Nicholas, 2017. "The Postwar British Productivity Failure," CAGE Online Working Paper Series 350, Competitive Advantage in the Global Economy (CAGE).
    4. Yvonne Wolfmayr-Schnitzer, 2000. "Economic Integration, Specialisation and the Location of Industries. A Survey of the Theoretical Literature," Austrian Economic Quarterly, WIFO, vol. 5(2), pages 73-80, May.
    5. Julien Allard & Rodolphe Blavy, 2011. "Market Phoenixes and Banking Ducks Are Recoveries Faster in Market-Based Financial Systems?," IMF Working Papers 11/213, International Monetary Fund.
    6. Tarantino, Emanuele, 2013. "Bankruptcy law and corporate investment decisions," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2490-2500.
    7. Katheryn N. Russ & Diego Valderrama, 2009. "Financial choice in a non-Ricardian model of trade," Working Paper Series 2009-27, Federal Reserve Bank of San Francisco.
    8. Crafts, Nicholas, 2017. "The Postwar British Productivity Failure," The Warwick Economics Research Paper Series (TWERPS) 1142, University of Warwick, Department of Economics.
    9. Sebastian A.J. Keibek, 2016. "Using probate data to determine historical male occupational structures," Working Papers 26, Department of Economic and Social History at the University of Cambridge, revised 21 Mar 2017.
    10. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance,in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552 Elsevier.
    11. Timothy W. Guinnane, 2001. "Delegated Monitors, Large and Small: The Development of Germany's Banking System, 1800-1914," Working Papers 835, Economic Growth Center, Yale University.
    12. Chaibi, Hasna & Ftiti, Zied, 2015. "Credit risk determinants: Evidence from a cross-country study," Research in International Business and Finance, Elsevier, pages 1-16.
    13. Bharat Barot, 2004. "How accurate are the Swedish forecasters on GDB-Growth, CPI-inflation and unemployment? (1993 - 2001)," Brussels Economic Review, ULB -- Universite Libre de Bruxelles, pages 249-278.
    14. Burhop, Carsten, 2006. "Did banks cause the German industrialization?," Explorations in Economic History, Elsevier, vol. 43(1), pages 39-63, January.
    15. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, pages 73-124.

    More about this item

    JEL classification:

    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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