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Are Banks Different? Evidence from International Data

  • Claudia M. Buch

Pecking order models of international finance suggest that countries should become less reliant on international bank lending as they develop. Reduced information costs are one of the factors behind this trend towards disintermediation. This paper presents a simple model on the choice between bank debt and bond finance which builds on Rajan (1992), and it uses two new datasets to test the implications, focusing on bilateral cross-border bank claims and bond holdings. We find support for the hypothesis that the state of development of an economy lowers the share of bank finance. However, evidence on the importance of variables which more directly measure information costs is less clear-cut.

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Paper provided by Kiel Institute for the World Economy in its series Kiel Working Papers with number 1012.

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Length: 27 pages
Date of creation: Nov 2000
Date of revision:
Handle: RePEc:kie:kieliw:1012
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  1. Stewart C. Myers, 1984. "Capital Structure Puzzle," NBER Working Papers 1393, National Bureau of Economic Research, Inc.
  2. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley.
  3. Eichengreen, Barry & Mody, Ashoka, 2000. "Lending booms, reserves and the sustainability of short-term debt: inferences from the pricing of syndicated bank loans," Journal of Development Economics, Elsevier, vol. 63(1), pages 5-44, October.
  4. Myers, Stewart C, 1984. " The Capital Structure Puzzle," Journal of Finance, American Finance Association, vol. 39(3), pages 575-92, July.
  5. Rafael La Porta & Florencio Lopezde-Silanes & Andrei Shleifer, 2000. "Government Ownership of Banks," NBER Working Papers 7620, National Bureau of Economic Research, Inc.
  6. Benjamin E. Hermalin & Andrew K. Rose, 1999. "Risks to Lenders and Borrowers in International Capital Markets," NBER Working Papers 6886, National Bureau of Economic Research, Inc.
  7. Maurice Obstfeld & Kenneth Rogoff, 2001. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," NBER Chapters, in: NBER Macroeconomics Annual 2000, Volume 15, pages 339-412 National Bureau of Economic Research, Inc.
  8. Moshirian, Fariborz & Van der Laan, Alex, 1998. "Trade in financial services and the determinants of banks' foreign assets," Journal of Multinational Financial Management, Elsevier, vol. 8(1), pages 23-38, January.
  9. Philip R. Lane & Gian-Maria Milesi-Ferretti, 2000. "External Capital Structure: Theory and Evidence," IMF Working Papers 00/152, International Monetary Fund.
  10. Zhaohui Chen & Mohsin S. Khan, 1997. "Patterns of Capital Flows to Emerging Markets: A Theoretical Perspective," IMF Working Papers 97/13, International Monetary Fund.
  11. Razin, Assaf & Sadka, Efraim & Yuen, Chi-Wa, 1998. "A pecking order of capital inflows and international tax principles," Journal of International Economics, Elsevier, vol. 44(1), pages 45-68, February.
  12. Schnitzer, Monika, 2002. "Debt v. Foreign Direct Investment: The Impact of Sovereign Risk on the Structure of International Capital Flows," Economica, London School of Economics and Political Science, vol. 69(273), pages 41-67, February.
  13. Wei, S.J. & Kim, W., 1999. "Foreign Portfolio Investors Before and During a Crisis," Papers 6, Chicago - Graduate School of Business.
  14. Richard Portes, 2005. "The Determinants of Cross-Border Equity Flows," Post-Print halshs-00754100, HAL.
  15. 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.
  16. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
  17. Fernandez-Arias, Eduardo, 1996. "The new wave of private capital inflows: Push or pull?," Journal of Development Economics, Elsevier, vol. 48(2), pages 389-418, March.
  18. Myers, Stewart C., 1984. "Capital structure puzzle," Working papers 1548-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  19. Linda L. Tesar & Ingrid M. Werner, 1992. "Home Bias and the High Turnover," NBER Working Papers 4218, National Bureau of Economic Research, Inc.
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