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Capital Market Regimes and Bank Structure in Europe

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Abstract

We hypothesize that features of European capital markets used to distinguish market reliance and investor protection have predictably influenced emerging national differences in bank capitalization, growth, and choice of income-producing activities. We characterize countries' capital regimes as more or less "equity-friendly" or "debt-friendly" based upon their reliance on equity and credit markets and the extent to which their legal frameworks protect shareholders and creditors. Using bank-level data from 13 European countries, 1998 to 2004, we find evidence of positive associations between equity-friendly market features and, respectively, bank capitalization, bank asset growth and the relative emphasis on bank lending to its customers. Support is also provided for hypotheses that credit-friendly capital regimes convey advantages reflected in higher rates of growth in assets and greater emphasis on lending to customers. Our results suggests that integration of European banking markets is mitigated by other, relatively static, features of the equity and debt markets on which banks rely.

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  • Ronald E. Shrieves & Drew Dahl & Michael F. Spivey, 2009. "Capital Market Regimes and Bank Structure in Europe," Working Papers 200807, Utah State University, Department of Economics and Finance.
  • Handle: RePEc:uth:wpaper:200807
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    File URL: ftp://repec.bus.usu.edu/RePEc/uth/wpaper/DEFWP2008-07.pdf
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    Cited by:

    1. Mejra Festić, 2011. "The role of the foreign banks in the 5 EU member states," Journal of Business Economics and Management, Taylor & Francis Journals, vol. 13(1), pages 189-206, June.
    2. Felix J. Lopez-Iturriaga & Emilio Lopez-Millan, 2015. "Institutional Framework, Corporate Ownership Structure, and R&D Investment: An International Analysis," HSE Working papers WP BRP 36/MAN/2015, National Research University Higher School of Economics.

    More about this item

    Keywords

    international banking; market integration; shareholder protection;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation

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