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Capital Market Regimes and Bank Structure in Europe

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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File URL: ftp://repec.bus.usu.edu/RePEc/uth/wpaper/DEFWP2008-07.pdf
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Paper provided by Utah State University, Department of Economics and Finance in its series Working Papers with number 200807.

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Length: 42 pages
Date of creation: 14 Jan 2009
Date of revision:
Handle: RePEc:uth:wpaper:200807
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  1. Berkowitz, Daniel & Pistor, Katharina & Richard, Jean-Francois, 2003. "Economic development, legality, and the transplant effect," European Economic Review, Elsevier, vol. 47(1), pages 165-195, February.
  2. Giuliano Iannotta & Giacomo Nocera & Andrea Sironi, 2007. "Ownership structure, risk and performance in the European banking industry," Post-Print hal-00861806, HAL.
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  5. Iannotta, Giuliano & Nocera, Giacomo & Sironi, Andrea, 2007. "Ownership structure, risk and performance in the European banking industry," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 2127-2149, July.
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  8. Goddard, John & Molyneux, Philip & Wilson, John O.S. & Tavakoli, Manouche, 2007. "European banking: An overview," Journal of Banking & Finance, Elsevier, vol. 31(7), pages 1911-1935, July.
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  10. Laeven, Luc & Levine, Ross, 2009. "Bank governance, regulation and risk taking," Journal of Financial Economics, Elsevier, vol. 93(2), pages 259-275, August.
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  13. Rafael La Porta & Florencio Lopez-deSilanes & Andrei Shleifer & Robert W. Vishny, 1999. "Investor Protection and Corporate Valuation," NBER Working Papers 7403, National Bureau of Economic Research, Inc.
  14. Simeon Djankov & Caralee McLiesh & Andrei Shleifer, 2005. "Private Credit in 129 Countries," NBER Working Papers 11078, National Bureau of Economic Research, Inc.
  15. A. Bhargava & L. Franzini & W. Narendranathan, 1982. "Serial Correlation and the Fixed Effects Model," Review of Economic Studies, Oxford University Press, vol. 49(4), pages 533-549.
  16. Barth, James R. & Caprio Jr, Gerard & Levine, Ross, 2001. "The regulation and supervision of banks around the world - a new database," Policy Research Working Paper Series 2588, The World Bank.
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