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Banking System Control, Capital Allocation, and Economy Performance

  • Randall Morck
  • M. Deniz Yavuz
  • Bernard Yeung

We observe less efficient capital allocation in countries whose banking systems are more thoroughly controlled by tycoons or families. The magnitude of this effect is similar to that of state control over banking. Unlike state control, tycoon or family control also correlates with slower economic and productivity growth, greater financial instability, and worse income inequality. These findings are consistent with theories that elite-capture of a country's financial system can embed "crony capitalism".

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 15575.

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Date of creation: Dec 2009
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Publication status: published as Morck, Randall & Deniz Yavuz, M. & Yeung, Bernard, 2011. "Banking system control, capital allocation, and economy performance," Journal of Financial Economics, Elsevier, vol. 100(2), pages 264-283, May.
Handle: RePEc:nbr:nberwo:15575
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