This PDF is a selection from an outofprint volume from the National Bureau of Economic Research Volume Title Asymmetric Information Corporate Finance and Investment Volume AuthorEditor R PDF document - DocSlides

This PDF is a selection from an outofprint volume from the National Bureau of Economic Research Volume Title Asymmetric Information Corporate Finance and Investment Volume AuthorEditor R PDF document - DocSlides

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Glenn Hubbard editor Volume Publisher University of Chicago Press 1990 Volume ISBN 0226355853 Volume URL httpwwwnberorgbooksglen901 Conference Date May 5 1989 Publication Date January 1990 Chapter Title Financial Systems Corporate Finance and Econom ID: 24331

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Presentations text content in This PDF is a selection from an outofprint volume from the National Bureau of Economic Research Volume Title Asymmetric Information Corporate Finance and Investment Volume AuthorEditor R


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This PDF is a selection from an out-of-print volume from the National Bureau of Economic Research Volume Title: Asymmetric Information, Corporate Finance, and Investment Volume Author/Editor: R. Glenn Hubbard, editor Volume Publisher: University of Chicago Press, 1990 Volume ISBN: 0-226-35585-3 Volume URL: http://www.nber.org/books/glen90-1 Conference Date: May 5, 1989 Publication Date: January 1990 Chapter Title: Financial Systems, Corporate Finance, and Economic Development Chapter Author: Colin Mayer Chapter URL: http://www.nber.org/chapters/c11477 Chapter pages in book: (p. 307 - 332)
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Financia Systems Corporat Finance an Economi Developmen Coli Maye 12. Introductio Ove th pas decad ther ha bee increasin interes i th rol o insti tution i th financial an rea activitie o th corporat sector Tha interes mos clearl reflecte i th plethor o model o imperfec informatio tha hav recentl appeare i th finance literature Severa attempt hav bee o ar currentl bein mad t establis th empirica significanc o thes model fo th financial behavio o firms. Thi volum report th re sult o a numbe o suc studies However a majorit o thi wor i confine on country namel th Unite States an examine onl a smal segmen a country' tota financial syste a an on time I i therefor difficul t judg th broader significanc o thes model fo th overal functionin o a financial syste an t determin th exten t whic the ar relevan t differen countries i wel know tha ther ar significan variation i th structur o dif feren countries financial systems Sinc Marshal ther ha bee muc dis cussio abou th rol o bank i th Germa financial system Schumpeter Gerschenkron an Camero al pointe t bank a a engin o growt o th Germa economy Mor recently simila consideratio ha bee give t th rol o bank i th Japanes econom an contrast hav bee draw Coli Maye i professo o corporat financ a Cit Universit Busines Schoo i Londo an codirecto o th Centr fo Economi Polic Research' progra i applie microeconomics Thi pape i par o th Centr fo Economi Polic Research' "Internationa Stud o th Financin o Industry. Th CEP stud i bein financed b th Anglo-Germa Foundation th Ban o England th Commissio o th Europea Communities th Economi an Socia Re searc Council th Esmee-Fairbair Charitabl Trust th Japa Foundation an th Nuffiel Foundation Thi pape wa presente a th NBE Conference "Information Capita Market an Investmen Conference, Boston Ma 1989 Th autho i gratefu t conferenc participant fo thei comments an especiall t Roge Farme an Glen Hubbard Ia Alexande provide excellen researc assistance 30
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30 Coli Maye betwee th importanc o bank an securitie market i Japanes an Anglo-Saxo financial systems respectively. Prim facie bankin system woul b expecte t avoi som o th in formatio deficiencie associate wit securitie markets A primar rational fo th existenc o bank i tha the perfor screenin an monitorin func tion tha individua investor ca onl undertak a hig cost Resourc allo cation credi availability an term o loan ma all therefore b superio unde a bank-base tha a marke financial system O th othe hand trans actio cost ma b lowe i th absenc o intermediation an taxatio ma militat i favo o market-base source o capital Ther ar the severa factor tha finance theor suggest shoul influenc th financing pattern o differen countries corporat sectors Th purpos o thi pape i t compar th industr financing o eigh develope countrie an t evaluat thes pattern i th contex o alternativ theorie o corporat finance. Internationa compariso o th financing o industr i a familia subject However i i probabl fai t sa that t date i ha onl she limite ligh o th functionin o differen financial systems I larg par thi i du t th unreliabilit o th underlyin data Ther are fo example well-know problem associate wit internationa comparison o corporat secto gearing th valuatio o assets th treatmen o reserve an goodwill an th doubl countin o intrasecto flows al presen seriou difficulties Th exten t whic suc inconsistencie ca b overcom b a ho correc tion i questionable On justificatio fo a reexaminatio o thi subjec a thi tim i tha mor reliabl method o compariso hav bee develope tha overcom man o th problem tha hav afflicte previou studies Problem remai bu th degre o comparabilit reporte i thi pape i almos certainl greate tha tha o previou studie an probabl abou a grea a existin dat allo th researche t achiev a a aggregat level Th result sugges 1 stylize fact abou corporat finance. Thes concer form o finance i differen countrie an th relatio betwee differen form finance ove time Th stylize observation ar reporte i Sectio 12. o th paper I Sectio 12.3 alternativ theorie o corporat finance ar dis cussed an thei relevanc t explainin th observe financing pattern i considered Thi i no suppose t b a tes o alternativ theories merel a examinatio o th exten t whic the ar consisten wit aggregat financ- in pattern i differen countries Theor an observatio bea directl o man o th issue tha hav bee centra t polic debate abou financial systems I particular ther i cur rentl muc discussio abou th relativ merit o bank an market fo promotin economi growth A note above bank hav traditionall bee regarde a centra t th promotio o economi growth Mor recently dis illusionmen wit th rol o bank i developin countrie ha intensifie i th fac o widesprea corruptio an ban failures Th Worl Ban (1989
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30 Financia Systems Corporat Finance an Economi Developmen has a a consequence advocate th us o bot securitie market an bank promotin economi growth Likewise a th emergenc o a unifie marke i 199 promise t creat hig degre o homogeneit acros th financia system o membe states th strength an weaknesse o differen financia system hav bee brough th for o polic discussions Sectio 12. consider th implication o bot empirica observation an theoretica model fo th relativ merit o securitie market an bank i promotin economi growth 12. Th Financin o Industr i Eigh Countrie Ther ar tw source o informatio availabl fo studie o aggregat cor porat financing pattern i differen countries Th first i nationa flow-of- fund statements Thes ar record o flows betwee differen sector o a econom an betwee domesti an oversea residents Th relevan state men fo thi exercis i flows t an fro nonfinancia enterprises Th sec on sourc i compan accounts Thes ar constructe o a individua firm basi bu ar ofte aggregate o extrapolate t industr o econom levels Bot source hav thei merit an deficiencies I theory flow-of-funds statistic provid a comprehensiv coverag o transaction betwee sectors Compan account ar onl availabl fo a sample ofte quit small o a country' tota corporat sector However th dat tha ar employe i com pan account ar usuall mor reliabl tha flow-of-funds. A Appendi A describes flow-of-funds ar constructe fro a variet o differen source tha ar rarel consistent A a consequence statistica adjustment ar re quire t reconcile entries describe i Maye (1987 1988 an Appendi B t thi paper th methodolog employe i th Centr fo Economi Polic Researc Stud o th Financin o Industr differ i severa respect fro tha use b previou researchers Greate emphasi i place o flows o finance instea o stocks Figure ar recorde o a ne (o accumulatio o equivalen financial assets wel a a gros fundin basis Financin proportion ar aggregate ove differen tim period usin a weighte a wel a a simpl averag o individ ua years proportions Appendi B argue tha thes procedure achiev a greate degre o internationa comparabilit tha ha bee availabl hitherto Table 12.1 12.2 an 12. repor weighte an unweighte averag fi- nancin proportion fo th five countrie o th internationa stud (France Germany Japan th Unite Kingdom an th Unite States an fo Canada Finland an Ital usin flow-of-funds statistics Tabl 12. report un weighte average o ne financing a a proportio o capita expenditure an stoc building Tabl 12. show weighte average o ne financing usin straigh lin depreciatio ove 1 year fro 197 t 1985 Tabl 12. record unweighte average o gros financing a a proportio o tota source o finance. Th weighte an unweighte average ar similar
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31 Coli Maye Tabl 12. Retention Capita transfer Short-ter securitie Loan Trad credi Bond Share Othe Statistica adjustmen Tota Unweighte Averag Ne Financin o Nonfinancia Enterprises 1970-85 Canada 76. -. 15. -4. 8. 2. 1. 1. 99. Finland 64. 3. 28. -1. 2. -. 7. -5. 100. Franc 61. 2. -. 37. -. 1. 6. -1. -6. 100. Germany' 70. 8. -. 12. -2. -1. 10. 99. Ital 51. 7. -1. 27. 1. 8. 1. 3. 100. Japan 57. N.A 50. -11. 2. 4. -3. N.A 100. Unite Kingdom 102. 4. 1. 7. -1. -1. -3. 3. -13. 100. Unite States 85. 24. -1. 11. 1. -16. -5. 100. Source: OEC Financia Statistics Note: Number ar percentages "Ne financin i show a a proportio o capita expenditure an stoc building Gros financin i a proportio o tota sources Fo Canada mortgage ar include i loans foreig investment ar include i other an capita transfer ar include i retentions Dat o Finlan refe t th perio 1969-84 Error i th OEC statistic hav require tha th statistica adjustmen b altere a follows 1971 D 2 billio an 1973 +D 8 billion Ther i n statistica adjustmen i Germa accounts Fund place wit insuranc companie an buildin an loan association ar include i loans Th Italia statistica adjustmen wa reduce b Lit2,07 billio i 197 t mak account balance Trad credi i no recorde a a separat ite i Italia flow-of-funds Japanes flow-of-funds d no repor retentions Th rati o externa t interna financin o Japanes enterprise ha bee obtaine b applyin proportion recorde i aggregat compan account fo th perio 1972-84 a show i table 12. an 12.5 Th Japanes figures therefor hav t b treate wit particula caution Short-ter securitie ar include i bonds Unite Kingdo statistic refe t privat enterprise only wer publi enterpris t b include the entrie woul rea a follows retentions 91.9 capita transfers 5.7 short-ter securities 1.3 loans 11.7 trad credit -.7 bonds -.9 shares -2.5 other, 2.1 statistica adjustment -8.5 Th followin modification wer mad t th U.S statistica adjustmen t mak account balanc (i million o dollars) 1970 -1 1971 -3 1973 +3 1975 +1 1976 -2 1979 +2 1981 -1 1982 +1 1983 -2 1984 -1 Capita transfer ar include unde retention i U.S accounts Acquisition o centra governmen short-ter securitie ar no show separatel fro bond an hav bee subtracte fro issue o bond i tabl 12. below Observation 1 Retention ar th dominan sourc o financ i al coun tries Th Unite Kingdo ha th highes proportio o retention (107 ex cludin publi enterprises 97 includin publi enterprise o a weighte ne financing basis) Ital ha th lowest but eve here ove hal o invest men i physica asset an stock i funde fro retentions Thi i no jus a consequenc o th procedur o nettin use o finance fro sources Eve a gros basi U.K corporation obtai jus ove 70 o thei tota source fro retention an U.S corporation jus unde 70%
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31 Financia Systems Corporat Finance an Economi Developmen Observation 2. Ther ar som marke variation i self-financin ratio acros countries I th Unite Kingdo an th Unite States mor tha three-quarter o investmen i funde fro retentions I Finland France Japan an Italy appreciabl mor i raise externally Canad an German li somewher betwee th tw groups Observation 3. I n countr d companie rais a substantia amoun o financ fro securitie markets Summin togethe short-ter securities bonds an share reveal tha th larges amoun raise i securitie market i 19 i Canad o a gros basi (i.e. a a proportio o tota sources an 13 o a ne basi i th Unite States I German an th Unite Kingdom ne amount raise fro thes thre source wer negativ an gros amount wer onl 3 i German an i th Unite Kingdom Onl i Canad an th Unite State d bon market rais a significan proportio o externa finance fo industry Observation 4. Bank ar th dominan sourc o externa finance i al countries Observation 5. Ban finance i particularl pronounce i France Italy an Japan I represent a surprisingl smal proportio o Germa corporat financing. Ban finance account fo approximatel 40 o gros source i France Italy an Japan I Germany th Unite Kingdom an th Unite States i onl contribute aroun 20 o tota sources Nettin of deposits thi fall 8 i th Unite Kingdom Rathe strikingly then ther i n suppor fro thes figures fo th commonl hel vie tha Germa bank contribut a substantia amoun t th financing o thei industr (se Carringto an Ed ward 1979) Comparin th gros an ne financing table demonstrate som o th problem associate wit interpretin gros fundin figures. I som coun tries trad credi appear t b a importan sourc o finance, i particula i Finlan (se tabl 12.3) Bu muc o thi i intracorporat secto an doe no contribut t tota ne financing. Tabl 12. correctl record that overall nonfinancia enterprise ar suppliers o credi t othe sectors i particula consumers Comparin table 12. an 12. reveal tha U.K enterprise hav bee particularl heav purchaser o financial assets Thi ha bee primaril i th for o deposits bu purchase o share hav als bee large Acquisi tion o financial asset i th Unite State mainl tak th for o intrasecto flows o trad credi an purchase o domesti share an oversea assets Th qualit o som flow-of-funds dat i questionable Statistica adjust ment revea inconsistencie betwee series an th coverag o som items particula trad credit i know t b inadequate U.K dat ar particu larl deficien i thi respect Tabl 12. recorde th fac tha th statistica adjustmen average 13 o gros investmen ove th perio 1970-85—ap proximatel twic tha o an othe country
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31 Coli Maye Tabl 12. Perio Retention Capita transfer Short-ter securitie Loan Trad credi Bond Share Othe Statistica adjustmen Tota Unweighte Averag Ne Financin o Non-financia Corporation Finlan 1975-8 66. 1. 3. 34. -7. 1. -2. 4. -2. 99. Franc 1976-8 66. 1. 36. 2. }-6. 100. Japa 1972-8 57. N.A N.A 46. -8. }- 2. 1. 100. Unite State 1970-8 87. 10. -2. 15. -1. -3. -6. 100. Source: Compan account a reporte i OEC Financia Statistics Note: Number ar percentages Tabl 12. Unweighte Averag Gros Financin o Nonfinancia Corporation Finlan Franc Japa Unite State Perio 1975-8 1976-8 1972-8 1970-8 Retention 41. 36. 33. 64. Capita transfer 1. . N.A . Short-ter securitie 2. ) 3 3 NA 1 Loan 34. ' ' 36. 12. Trad credi 13. 25. 15. 10. Bond . w 2. 12. Share 4. ' ' 4. 4. Othe 4. . 7. -. Statistica adjustmen -1. . . -5. Tota 99. 100. 99. 99. Table 12. an 12. repea th financing proportio exercis usin com pan accountin dat wher the ar available Ther i a stron similarit i th financing pattern tha emerg fro th tw source o data However ther ar a fe differences Ban loan ar mor significan i Finlan bu muc les significan i th Unite State tha suggeste b th flow-of-funds data Bond ar eve mor significan i th Unite State a a sourc o fi- nanc fo industr tha flow-of-funds dat indicate Averag financing ratios therefore loo simila fo th tw source o data However nothin ha bee sai t dat abou th exten t whic thes proportion hav change ove tim o th correlatio betwee differen form finance. Flow-of-fund dat ar to shor (1 observation pe countr fo th serie standardize b th OECD t provid accurat guidanc o eithe thes questions I contrast compan accountin informatio ha bee col lecte fo nearl 4 year i th Unite Kingdom
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31 Financia Systems Corporat Finance an Economi Developmen Th graph i figure 12. an 12. ar base o aggregat compan ac countin information I interpretin th graph i shoul b born i min tha ther wa a significan chang i samplin procedure i 1977. Th graph sugges th followin observations Observation 6. U.K investmen ha bee consistentl financed fro re tention (91 o average) Ban finance ha contribute clos t zer (3 o average o a ne basis. Observation 7 Ther i a stron invers relatio betwee th proportio expenditur financed fro retention an ban credit Confirmatio fo observatio 7 come fro a examinatio o correlation betwee differen form o finance. Tabl 12. record th correlatio betwee retention an othe source o finance. Retention ar strongl inversel cor relate wit trad credi an ban credi o bot a gros an ne basis Th fac tha thi i tru o gros a wel a ne ban credi indicate tha short-ter financing requirement ar satisfie b raisin ban loan a wel a reducin cas balances Despit onl havin a shor tim serie availabl fo othe countries tabl 12. reveal a remarkabl consistenc i thi patter o correlations Loan an trad credi ar inversel relate t retention i al countries O a ne -0.20 -0.4 197 197 198 RETENTION -* NE BAN CREDI Fig 12.1 Retention an ne ban credi i th Unite Kingdo (proportion physica investment Source Goudi an Meek (1986)
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31 Coli Maye 0.3 0.20 0.10 0.0 -0.10 -0.20 -0.3 197 197 I9» Fig 12.2 Ne issu o securitie i th Unite Kingdo (proportio o physica investment Source Goudi an Meek (1986) Tabl 12. Investmen Retention Correlatio Matri fo U.K Quote Companies 1949-7 Retention .2 1.0 Trad Credi -.1 -.7 Gros Sourc Ban Credi .1 -.7 Long-ter Deb -.1 -.0 Ne Equit Issue -.0 .0 Trad Credi .6 -.5 Ne Sourc Ban Credi .1 -.8 Securitie Issue -.4 -.2 Note: (I Gros an ne source ar define a a percentag o tota gros an ne sources respectively Investmen an retention ar define a a percentag o tota gros source fo th first five column an retention i define a a percentag o tota ne source (i.e. physica investment fo th las thre columns Th absolut valu o investmen i use i th las thre columns basi (tabl 12.8) th stron invers relatio wit loan remains However wit trad credi th correlatio i considerabl weakene an i man case eliminated Thi ma b jus a reflectio o th poo qualit o trad credi dat i flow-of-funds statistic o a indicatio o th intracorporat secto natur o th transaction no full reveale b th partia coverag o com pan accounts Observation 8. Securitie market hav decline i significanc a source o finance fo Britis industry Trad credi increase i importanc a th en o th 1960 an earl 1970s. Ther i n evidenc o financial innovatio an deregulatio bein asso
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31 Financia Systems Corporat Finance an Economi Developmen ciate wit a growt i th contributio o marke source o finance. Cross sectiona evidenc suggest tha hig retentio proportion i th Unite Kingdo ar no merel a consequenc o lo industria growth Tw rela tivel hig growt industria sector (chemical an allie firms, an electrica engineering recorde financing proportion tha wer equa t o i exces o thos i othe industrie (tabl 12.9) However ther ar marke difference i financing proportion o differen siz o firms withi industries Sinc 1977 th U.K Departmen o Trad an Industr ha categorize firms b tw siz groups (1 larg an (2 mediu an smal companies. Tabl 12.1 belo record th following: Observation 9. Small an medium-size firms ar considerabl mor re lian o externa finance tha larg firms. A smalle proportio o small tha large-compan finance come fro securitie markets Confirmatio fo th greate rol o bank i smal compan financing come fro a examinatio o stoc a wel a flow proportion i tabl 12.11 However i shoul b born i min tha pre an post-197 dat ar no directl comparable Observation 10. Ban (an short-term finance accoun fo approxi matel two-third o U.K companies tota deb bu mor tha five-sixth o smal companies tota debt Thes te observations o stylize facts warran explanation Tabl 12. Proportio o Short-ter se curitie Loan Trad credi Bond Share Tabl 12. Proportio o Short-ter se curitie Loan Trad credi Bond Share Correlation betwee Proportion o Retention an Proportion o Othe Form o Gros Financ Canad .0 -.7 -.4 .1 -.0 Finlan -.5 -.4 -.3 -.1 .2 Franc .0 -.3 -.3 .4 -.2 German .0 -.5 -.3 -.5 .0 Ital .3 -.7 N.A -.3 -.1 Japa N.A N.A N.A N.A N.A Unite Kingdo -.1 -.7 -.6 -.3 .4 Unite State -.3 -.4 -.8 .4 -.2 Correlation betwee Proportion o Retention an Proportion o Othe Form o Financ Canad -.5 -.7 .0 -.3 .7 Finlan -.6 -.4 -.4 .1 -.1 Franc -.4 -.4 -.4 .1 -.4 German -.0 -.5 -.0 -.7 .3 Ital -.5 -.8 N.A -.0 .0 Japa N.A N.A N.A N.A N.A Unite Kingdo -.2 -.7 .0 -.3 -.1 Unite State -.4 -.6 .0 .0 -.0
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31 Coli Maye Tabl 12. Financin Proportion i Tw Industrie i th Unite Kingdo Retention Trad credi Ban credi Long-ter liabilitie Issue o Share Tota Tota Sampl 59. 17. 5. 6. 10. 99. Gros Proportion Chemical an Allie Industrie 62. 12. 3. 13. 8. 99. Electrica Engineerin 59. 17. 1. 6. 15. 100. Tota Sampl 91. 1. 2. 8 100. Ne Proportion Chemical an Allie Industrie 89. -2. -2. 7 100. Electrica Engineerin 117. -11. -20. 0 100. Source: Goudi an Meek (1986) Busines Monitor (M3) Note: Al average ar unweighted Th tota sampl refer t th perio 1949-84 chemical an allie an electrical engineerin industrie relat t th perio 1949-82 Tabl 12.1 Financin Proportion o Large an Medium an Small-Size Companie th Unite Kingdom Average 1977-198 Banks Short-ter Loan Retention an Trad Creditor Al companies Larg 70. 23. Mediu an smal 52. 45. Chemica companies Larg 70. 20. Mediu an smal 50. 50. Electrica companies Larg 79. 19. Mediu an smal 60. 37. Source: Busines Monitor (M3) 12. Alternativ Theorie o Corporat Financ Ther ar five classe o theor t whic on migh tur fo a explanatio th abov financing patterns a irrelevanc proposition transactio costs taxation informatio an contro theories Thes wil b considere i turn 12.3. Irrelevanc Th mos widel cite theor o corporat finance i th Modiglian an Mille proposition Thi state tha i th presenc o perfec an complet capita market an i th absenc o taxation corporat valuations an cost capita ar independen o firms' capita structures fac value thi propositio suggest n underlyin determinan o cor porat capita structure th financing o industr i a matte o indifference Issue o Share an Long-ter Deb 5. 1. 7. 3. 3. 2. Othe Source 1. -4. -1.
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31 Financia Systems Corporat Finance an Economi Developmen acciden o histor an a produc o rando influences However th sta bilit o financing pattern ove tim an countrie tha ha bee note abov argue strongl agains th thesi o indifference Th 1 stylize observation warran explanation Th indifferenc propositio doe no provid i an can not o it own b treate a a seriou basi fo explainin internationa pat tern o corporat finance. 12.3. Transactio Cost Combine wit transactio cost o taxation th theor i muc mor pow erful Th mos immediat implicatio o introducin transactio cost i t establis a preferenc fo retentio ove externa finance. Thi i quit con sisten wit observatio 1 However th Unite Kingdo an th Unite State ar generall regarde possessin th mos highl develope an efficien financial system o an countr i th world Thi propositio rest uneasil alongsid th observatio tha the hav th lowes externa financing proportion o an o th countrie th stud (observatio 2) course thi ma merel reflec a lo deman fo externa finance. Bu eve th compositio o externa finance doe no correspon wit th predic tion o a transactio cos theory Th mos strikin cas o internationa vari ation i transactio cost come fro observation o equit markets I som countries stoc market ar ver small Fo example i Franc an Germany les tha 50 companie ar quoted Thi compare wit 1,70 i Japa an 2,00 i th Unite Kingdom Frenc an Germa marke capitali zation wer 20 o gros domesti produc (GDP a th en o 198 a agains nearl 90 i Japa an th Unite Kingdo an 50 i th Unite States But ove th perio o thi study th Unite Kingdo an th Unite State raised a best approximatel th sam amoun o (an probabl i practic rathe less ne equit finance fo thei industrie a Franc an Ja pan I i no merel a matte o transactio cost bein a fe percentag Tabl 12.1 Rati o Stoc o Ban an Short-ter Loan t Tota Short an Long-ter Debt Averag 1977-8 (i percentages Al companies 6 Larg companie 6 Mediu an smal companie 8 Chemica companies 4 Larg chemica companie 4 Mediu an smal chemica companie 9 Electrica companies 7 Larg electrica companie 6 Mediu an smal electrica companie 9 Source: Busines Monitor (M3) Note: Ban loan relat t bot short an long-ter loans Th tabl i no therefor informativ abou maturit o debts
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32 Coli Maye point highe i som countrie tha other bu a differenc betwee compa nie havin ver genera acces t securitie market i som countrie an ver limite acces elsewhere Turnin t bon finance, th surprisin featur i ho littl i raise i a low-cost unregulate Eurobon marke b Europea corporation i relatio domesti issue b Nort America firms. Ove th perio o thi stud Britis firms wer net purchaser (o repurchaser o bonds an Canadia firms significan ne issuers I contrast accordin t on repor (OEC 1989) direc cost o issuin bond wer relativel hig i Canad (1.7 fo larg issues i 1982/8 an lo i th Unite Kingdo (1.1 fo larg is sues) Finall th notio tha ratio o externa t interna finance merel reflec investmen demand i undermine b comparison o low an high-growt sectors Tw o th highest-growt sector (electronic an pharmaceuticals ha th highes retentio proportions. I an event transactio cost ar probabl i genera swampe b ta considerations 12.3. Taxatio Th first poin t not abou taxatio i tha i virtuall ever countr o thi stud (wit th possibl exceptio o Finland deb finance ha bee fa vore ove equity Thi stand i marke contras t th universa preferenc fo equit finance (includin retentions ove deb finance (observatio 1) Mor generally tabl 12.1 record a poo relatio betwee ta incentive emplo differen form o finance i th eigh countrie o th stud an actua financing proportions O th left-han side tabl 12.1 rank th ta incentiv t us deb i preferenc t retentions ne equit issue i prefer enc t retention an ne equit i preferenc t debt Countrie a th to hav th highes incentiv t us th first for o finance i eac case O th right-hand side i report actua financing proportion fro tabl 12. o thi paper Th mos strikin countr i th first par o tabl 12.1 i Germany whic ha th highes incentiv t us deb i relatio t retention an th secon lowes us o deb relativ t retentions Th Unite Kingdo ha th lowes debt-to-retention ratio an th thir highes ta incentive Th pictur i no ver muc bette fo th rati o ne equit t retention wher German no ha th thir lowes ne equit proportio an th highes incentiv an th Unite Kingdo stil ha th lowes proportio an th fourt highes incen tive migh b objecte tha comparison o interna an externa financing proportion an incentive ar distorte b transactio cost an investmen requirements Th thir par o th tabl ma therefor b regarde a mor instructive Ther th mos strikin cas i Finland whic ha th highes incentiv t us ne equit i preferenc t deb an th secon lowes pro portion Th Unite Kingdo als ha a remarkabl lo ne equit propor
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32 Financia Systems Corporat Finance an Economi Developmen Tabl 12.1 Compariso o Rankin o Eigh Countries Ta Incentive t Emplo Differen Form o Financ wit Averag Financin Ratio ove th Perio 1970-8 Ta Incentive Debt/retentions German Japa Unite Kingdo Canad Ital Franc Unite State Finlan Ne equity/retentions German Ital Canad Unite Kingdo Franc Finlan Japa Unite State Ne equity/debt Finlan Ital Canad Franc Unite Kingdo German Unite State Japa Financin Ratio Japa Franc Ital Finlan Unite State Canad German Unite Kingdo Ital Franc Japa Canad Unite State German Finlan Unite Kingdo Ital Franc Canad Japa German Unite State Finlan Unite Kingdo Source: OEC (1986 an tabl 12. o thi paper "Ta incentive ar base o th approac describe i Kin an Fullerto (1984) Th OEC calculation ar base o th "fixed-p cas an th result reporte abov relat t "actua inflation. Ta incentive ar compute a th ratio '-, wher t, i th effectiv ta rat o - t) sourc o finance / Ta incentive relat t ta exemp institutiona investor an investmen i equipment •"Financin proportion ar base o tabl 12. i thi paper tha is unweighte averag ne financing fro flow-of-funds sources Deb i define a th su o short-ter securities loans trad credit an bonds tio i th fac o a hig incentiv resultin fro it imputatio syste o taxation Ther ar severa objection tha ca b raise agains thi typ o compari son Ther ar well-know problem i comparin ta incentive acros coun tries Th figures o whic tabl 12.1 ar base com fro a OEC exten sio o th King-Fullerto (1984 study Thes deriv ta incentive create bot corporat an persona taxatio o th basi o a Modiglian an Mille (a agains a Miller equilibriu mode o th economy The d no
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32 Coli Maye tak accoun o cross-borde ta incentive t locate finance an inves i differen countries an the hav bee foun t b ver sensitiv t respecifi cation o th model I addition th ta incentive i th OEC stud relat investmen i equipment no structures an tax-exemp institutions no households I fact th rankin o incentive i virtuall identica fo struc ture an equipmen bu i sensitiv t th assume ta rat o investors. Finally th ta incentive refe t on year 1983 whil th financin propor tion ar average ove th perio o th study 1970-85 Averagin ove th perio 1982-8 reveale tha th rankin o externa t interna financing pro portion i simila aroun th dat o measuremen o ta incentives Despit al thes possibl source o inaccuracy ther woul hav t b a remarkabl leve o mismeasuremen fo taxatio t provid a credibl explanatio fo observe financing proportions 12.3. Informatio Theorie first sight informatio theorie appea t b quit consisten wit man th result reporte i thi paper Fo example Myers' (1984 pecking orde hypothesi suggest tha riskless securitie (debt ar use i preferenc risky (ne equity an retention ar use i preferenc t externa source finance (observation 1 an 3) However th thesi o whic th aversio t ne equit finance i base (Myer an Majlu 1984 i a insider-outside mode i whic owner ar raisin finance fro outsid investors I say nothin abou th preferenc o owner betwee subscribin themselve i th for o ne equit issue an increasin retention b cuttin dividends Sinc rights issue ar frequentl employe i Europ (almos al ne equit issue ar rights issue i Franc an th Unite Kingdom) th sal o equit t externa investor doe no aris i man o th countrie o thi study Furthermor ther i littl suppor fo Myers' predictio tha equit finance employe a hig level o gearin whe deb become risky. Eve i Japa an Italy wher gearin level hav bee high ther i littl ne equit fi- nanc (observatio 5) Som aspect o internationa pattern o corporat finance appea consist en wit informatio models Observatio 3 tha bon finance i significan Canad an th Unite States i consisten wit th unusuall larg numbe bond-rate companie i thes countries I contrast ther ar jus 3 bond-rate nonfinancia corporation i th Unite Kingdom 1 i France an 4 i Germany However i anything thi relatio betwee bon finance an rating raise somethin o a puzzle I i i possibl t establis institution tha perfor a pur information-gatherin exercise the wha i th rol o banks? Informa tio theor canno explai wh ther i a clea preferenc fo ban finance i mos countrie (observatio 4) an wh ban finance remain importan i th Unite States
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32 Financia Systems Corporat Finance an Economi Developmen a simila score a analysi o credi evaluatio procedure o bank i differen countrie reveal tha th informatio conten o bank i simila i differen countries Ther ma b tw exception t this German an Japan Bot countrie hav clos relation betwee bank an industry I Germany bank frequentl hav representative o th board o larg firm (Edward an Fische 1990) I Japa ther i regula interchang o personne betwee bank an firms (se Corbet 1987) Bu i German a unusuall smal pro portio o corporat secto finance come fro banks whil Japa ha a unusuall larg proportio (observatio 5) Informatio deficiencie d no provid a convincin explanatio fo ob serve internationa pattern o corporat finance o thei own Ther i a aspec o th relatio betwee institution an firms tha informatio theorie fai t capture Th nex subsectio suggest tha thi ha t d wit contro rathe tha monitorin o firms. 12.3. Contro theorie Th previou subsectio ha note tha agent-principa problem ca aris wher informatio asymmetrie exist Imperfec informatio i on bu no th onl explanatio fo wh agent-principa problem ma arise Problem verifiabilit an enforceabilit o contract a wel a observabilit ma undermin th writin an implementatio o complet contracts Alterna tively writin complet contract ma simpl b to expensive th absenc o complet contracts th allocatio o contro ove th de ploymen o asset matters Thos wh contro th employmen o asset shoul b residua claimants Th amoun o finance tha thos wh ar no i contro ar willin t provid wil b dependen o th amoun tha the ca realiz i the d tak contro (se Maye 1989a) Contro theor i mos closel associate wit Philipp Aghio an Patric Bolton. The argu tha th amoun o deb finance tha a firm wil choos i dependen o th poin a whic i i optima fo contro t b transferre fro entrepreneu t creditor Thu externa financing i dependen o th relativ productivit o creditor an entrepreneur i particula state o nature Mor generally contro theor suggest tha externa financing i dependen (se Maye 1989b) (i th manageria abilit o creditors (ii th natur o asset (th highe thei realizabl value th highe i th creditor' reservatio valuatio an th greate i th amoun o externa finance tha i available) (iii th cost o coordinatin creditor an th cost o bankruptc an liqui dation an (iv othe nonfinancia control tha investor ca exer o firms. Mor specifically contro theorie lea t th followin predictions PREDICTIO 1 Gearin level wil b hig wher th valu o asset unde credito managemen i high PREDICTIO 2 Asset tha ar no specifi t thei curren employmen wil attrac mor externa finance. PREDICTIO 3 Wher th cost o organizin externa contro ar high ther wil b littl externa finance.
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32 Coli Maye PREDICTIO 4 Th relatio betwee contro an finance i weakene wher interest o investo an manage d no diverge Th observation o th previou sectio ca b assesse i relatio t thes predictions Th firs five observation o th dominan rol o retentions lo contribution fro securitie markets an th importanc o bank i som countrie ar consisten wit prediction 1 an 3 I externa interventio i costl becaus creditor ar eithe poo manager o difficul t organize the ow finance wil dominat (observatio 1 an b particularl larg i coun- trie i whic managemen an finance ar separate (observatio 2) Credi tor tha ar disperse an difficul t organiz wil pla a especiall smal rol (observatio 3) Instead finance wil com fro intermediarie (obser vatio 4) tha ar closel integrate int thei corporat sector (observa tio 5) Th relatio betwee finance an contro i particularl eviden i th pro visio o workin capital Th mai provider o workin capita (bank an trad creditors—observatio 7 als hav th mos direc clai o asset i th even o defaul (fixe an floating charges) Th abilit t trigge thes claim automaticall wit littl direc manageria inpu mean tha institution ca smoot cas flows eve wher thei longe ter involvemen i smal (compariso o observation 2 an 7) Prediction 2 an 3 hel t accoun fo observation 9 an 10 Smal an newl forme companie hav a lo intangibl (goodwill t tangibl valua tio ratio Therefor a smalle proportio o thei asset ar specifi t thei curren employment an investor ca realiz a large proportio o thei on goin valu i th even o default A a consequence th externa financing ratio o smal companie i highe tha averag (observatio 9 an finance i provide b investor wh ca tak contro a lo cos (observatio 10) B wa o a corollary i i wort notin tha capita marke deficiencie wil b particularl pronounce i firms wit a hig proportio o intangibl asset (i.e companie involve i substantia researc an developmen (R&D pro grams an fe ow resources Thi i consisten wit th Schumpetaria hy pothesi tha produc marke dominanc i require t provid finance fo R&D fo th othe tw observations th apparen constanc o financing pat tern (observatio 6 support th emphasi tha i place o structura factor (qualit o management natur o assets an cost o credito coordination contro models Th declin i th proportio o certai classe o externa finance (observatio 8 probabl the reflect a shif i th balanc o corpo rat an investo contro a th complexit o corporat organizationa ar rangement increase i th Unite Kingdom Observation o internationa pattern o corporat finance ar therefor suggestiv o th relevanc o contro theorie o finance. However ther i on observatio tha a leas a first sigh appear inconsisten wit contro theories Despit havin a bankin syste tha i closel integrate wit it
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32 Financia Systems Corporat Finance an Economi Developmen corporat sector Germa industr raise a comparativel modes proportio it financ i th for o loan (observatio 5). Predictio 4 wa tha th relatio betwee financ an contro woul brea dow wher investo an managemen interest d no diverge Thi description i i suggested i ap plicabl t Germa bank-investo relations Schonfiel (1965) i hi classi accoun o th Germa financial system sa bank a th prefect o Germa industry Thei powe derive fro thei equit investments thei prox votes an thei representatio o supervisor board (th Aufsichtsrat). Knigh (1988 view th relatio a mor advisor tha dictatoria an echoe th sentiment o Germa banker whe h con cludes "Th evidenc the point t th bank a sometime providin com panie wit independent well-informe an well-connecte nonexecutiv chairme abl t mak a powerfu contributio t th board' performance (15) Consensu o command th nee fo financial contro i lessene b th othe instrument tha Germa bank hav a thei disposal 12. Conclusion an Polic Implication quit strikin observatio t emerg fro th empirica analysi i tha i countr d securitie market contribut a larg proportio o corporat secto financing. In som countries th averag ne contributio wa clos t les tha zero Equit market ar particularl deficien i thi respect Tha no t sa tha equit market d no perfor a importan function The ma promot allocativ efficienc b providin price tha guid th allocatio resource o productiv efficienc throug reallocatin existin resource via fo example th takeove process Bu i term o aggregat corporat secto funding thei functio appear limited Instead a majorit o externa finance come fro banks Why Neithe transactio cost no taxatio wer foun t provid adequat de scription o corporat financing pattern i differen countries On interpre tatio fo th preponderanc o ban finance i tha financial intermediarie perfor a centra functio i diminishin on o th mos seriou deficiencie financial markets asymmetrie i information Accordin t thi view bank pla a importan rol i collectin an processin informatio tha market ar unabl t d o ca d onl a hig cost Ther i almos certainl a larg elemen o trut i thi story Bu th anal ysi o th sectio 12. suggeste tha imperfec informatio i no a ade quat descriptio o it own Informatio gatherin ca b quit effectivel performe b institution othe tha banks Furthermore th distinguishin featur o bank i differen countrie doe no appea t b th natur o o th wa i whic the collec information Instead i i th exten t whic an th for i whic institution influenc th activitie o firms tha appea t sho marke variation acros institution an countries I contro direc i th for o representatio o th board o
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32 Coli Maye firm o indirec i th for o takeovers D financial institution o individ ua shareholder initiat changes i control Ho eas i i t for coalition shareholder o bon holder an ho seriou ar free-ride problem o control Th analysi i th previou sectio suggeste tha contro theorie provid goo basi fo understandin th 1 stylize observation o thi paper The emphasiz th manageria function o financial institution an sugges tha th centra rol o bank come fro thei abilit t interven an tak contro comparativel lo cost thi i right the th implicatio o bot th empirica observatio o a preponderanc o externa finance comin fro bank an contro model o corporat finance i tha bank ma b superio t market i promotin eco nomi developmen an growth Thi ma b particularl tru i th earl stage o developmen o bot economie an firms befor reputation hav bee establishe an adequat incentive exis t brin borrowers an lend ers interest int line I th longe ter intermediarie ma b les centra th developmen o firms. 13 Bu i th earl stage o th growt o firms an economie a efficien bankin syste ma b a essentia requiremen fo expansion Durin thes periods securitie market ar unlikel t b ef fectiv substitutes Appendi A Alternative Sources of Data Ther ar tw source o informatio o corporat financing: flow-of-funds statistic an compan accounts Compan account ar availabl o a indi vidua firm basis flow-of-funds ar aggregate acros sectors Fo thi pur pose th relevan flow-of-funds secto i nonfinancia enterprises Th primar advantag o flow-of-funds dat i tha thei coverag i com prehensive I contrast compan account ar onl availabl fo a limite numbe o firms an sample ar frequentl a smal proportio (b number al enterprises O th othe hand definition o enterpris sector diffe acros countries I theory Standar Nationa Accountin (SNA convention stipulat tha privat an publi corporation shoul b include i th nonfi nancia enterpris sector Unincorporate businesse shoul b include i th household no th nonfinancia enterpris sector I practice a tabl 12A. records onl Canad abide b th SN definition Th majo proble wit flow-of-funds dat i tha the ar collecte fro a variet o differen sources Fo example i th Unite Kingdom profit ar largel base o ta return t th Inlan Revenu an loan an securitie
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32 Financia Systems Corporat Finance an Economi Developmen Tabl 12A 1 Definition o Nonfinancia Enterpris Sector Countr Definitio Canad A fo SN Finlan Includes unincorporate enterprise Franc Exclude larg publi corporation German Include unincorporate enterprise Ital Exclude som publi corporation Japa Exclude larg publi corporation Unite Kingdo Exclude publi corporation Unite State Include unincorporate enterprises exclude publi corporation issue o return b financial institution t th Ban o England A a con sequence source an use d not i general balanc an a statistica adjust men i require t reconcil entries. fundamenta distinctio betwee flow-of-funds statistic an compan account i tha th forme onl relat t domesti activitie whil th latte ar constructe o a worldwid basi includin foreig subsidiaries Thu is sue o bon an equit securitie ar restricte t thos mad o domesti market i flow-of-fund account bu includ issue o al market i com pan accounts Compan account ar therefor mor suitabl fo analyzin ho differen countries corporat sector fun themselves bu flow-of-fund allo th contributio o a domesti sector' financial syste t b identified Overal ther i a presumptio tha compan account ar mor accurat tha flow-of-funds. However compan accountin analyse ar length exer cises frequentl involvin th manipulatio o ver larg dat banks A ye comprehensiv informatio i onl availabl o th Unite Kingdom Eve here ther ar seriou discontinuitie i aggregat series Fo example i 197 th sampl o U.K compan account wa extende fro firms quote th stoc exchang t a representativ sampl o al companies Fo othe countries aggregat compan account constructe b th OEC hav ha t b used Thes suffe fro simila discrepancie i th definition sector t flow-of-funds. Eventually comprehensiv accountin informa tio o th five countrie o th stud wil b availabl whic wil provid a greate degre o comparabilit tha ha bee availabl t date I th mean time mor emphasi i place i thi articl o flow-of-funds sources Th relativ merit o compan account an flow-of-funds ar summarize i Tabl 12A.2
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32 Coli Maye Tabl 12A. A Compariso o Flow-of-Fund an Compan Account a Description o th Fundin o Industr Flow-of-Fund Compan Account Consistenc i definition corporat sector Coverag o companie Coverag o item Interna consistenc Qualit o dat Ca b poo Comprehensiv Domesti Poo Ca b ver poo Ow aggregatio i possibl Limited sometime ver limite Globa Goo Goo Appendi B Derivation of Financial Statistics Thi stud differ fro previou internationa comparison i bot th dat it use an th wa i whic thos dat ar presented. Th Dat Mos existin internationa comparison us stoc dat fro compan bal anc sheet t deriv gearin levels Tw seriou objection hav bee raise agains thi approach First i th absenc o inflatio corrections capita stoc an equit valuation ca b substantiall underrecorded I Japa re valuation o compan account ar uncommo an i German the ar for bidde b law A Aok (1984 ha noted th failur o Japanes account t revalu assets i particula land ha resulte i Japanes gearin level bein considerabl overstated Second boo value o asset an reserve ar sen sitiv t depreciatio schedules. Accountin convention o depreciatio var appreciabl acros countries partl i respons t difference i corpo rat ta regimes Problem wit accountin valuation hav le severa author t advocat th us o marke valuations However consideratio o th us o marke valuation suggest a mor fundamenta objectio t stoc measures Marke valuation respon no onl t inflow an outflow o ne financia resource bu als t change i valuation o existin resources Valuation serv man usefu purpose bu d no assis i measurin financia flows. se this conside a compan tha purchase lan o th uncertai pros pec o strikin oil Suppos tha th lan cost £ millio an th compan fund thi entirel fro a ban loan Assumin n othe resources it initia gearin i 100% I th compan subsequentl strike oi an th valuatio o th lan rises t £10 million it gearin leve wil dro t 1% I i doe not
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32 Financia Systems Corporat Finance an Economi Developmen the value o bot lan an deb fal t £100,00 an th compan i insol vent Th outcom o exploration appropriatel affect valuation o deb an equit bu doe no alte th wa i whic th origina investmen wa fi nanced Fo thi reaso flows ar use i preferenc t stocks On implicatio o usin flows rathe tha stock i tha retention ar define o a gros o de preciatio rathe tha a net basis Th reaso fo thi i tha b subtractin depreciation financing i bein distorte b accountants estimate o valua tio changes Thes shoul no b par o a source o fund accoun an ar an even inconsistentl measure acros countries Dat Presentatio Al financing proportion ar recorde o a ne basis acquisitio o finan- cia asset ar subtracte fro increase i correspondin liabilities Th ra tional behin usin ne financing proportion i tha aggregat corporat financing figures attemp t answe th question i wha for di th nonfi nancia corporat secto a a whol fun it physica investment Intracorpor at secto flows shoul net out an offsettin flows shoul b eliminated Thus fo example fro th perspectiv o th compan secto a a whole ne equit issue b on compan ar offse b repurchase o equit o equa magnitud b anothe company An othe approac lead t nonsensica re sults Consider fo example a compan tha i require t mak a compensatin deposi o £3 fo £10 o finance raised Compensatin deposit ar commo Japa an th Unite States Th compan ha raise £10 gros bu onl £7 net Bu suppos th compan voluntaril hold £4 i deposits shoul i treate a havin raise £7 o £60 Clearl ne financing raise fro th ban i thi perio ha bee £60 I ma choos a a late dat t increas thi £7 bu th additiona £1 ha t b attribute t tha perio i whic finan- cia asset ar reduced Economi theor doe no currentl allo reduction i stock o financial asset t b distinguishe fro increase i financial assets Whe a robus theoretica distinctio i availabl the separat classificatio wil b appro priate Contro theor offer jus suc a distinctio b distinguishin finance degree o intervention Ironicall then th theor tha thi pape empha size wil i tim invalidat th nettin approac tha ha bee advocate here However a th curren tim th appropriat nul hypothese tha shoul guid th constructio o financing dat ar Modiglian an Mille irrelevanc prop osition an corporat taxatio models movin fro singl project t compan finance, flows i differen tim period hav t b aggregated Th mos straightforwar approac i simpl averag financing proportions However tha doe no tak accoun o amount o finance raise an s put undu emphasi o period o lo in
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33 Coli Maye vestment Instead average coul b create b revaluin flows o differen classe o financ t constan price an the aggregatin them I a capita good pric inde i use fo revaluations thi i equivalen t weightin fi- nancin proportion b gros level o investmen a constan prices A ap pealin alternativ i t weigh b depreciated value o investmen a con stan prices Thi answer th question wha woul th capita structur o a compan b i i replicate it existin capita stoc usin th sam source o finance a i employe i th past Th averag i calculate a follows 5> x a,, x (pjyp* i j , i\y= / wher I{ = amoun o typ j finance raise i perio t (j = 1 . . . 7 t = 1 . . T) a T = depreciate valu i perio T o a uni investmen i perio t; = capita good pric inde i t. Note See e.g. Carringto an Edward (1979 an Rybczynsk (1988) Ther i a stron similarit betwee th financing proportion recorde fo th Unite State i tabl 12. an thos reporte i Goldsmit (1965 fo earlie periods Goldsmit report th followin fo th perio 194 t 1958 retentions 58.2 loans 25.7 bonds 9.6 equities 6.4 Se App A fo details I i onl slightl i exces o thi o a gros basis—6 o average Comparison o financin proportion i n 2 abov wit tabl 12. suggest tha simila declin ha occurre i th Unite State ove th secon Worl Wa period Taggar (1985 demonstrate tha th declin ha bee a long-ru one H report th followin financing proportion fo th U.S nonfinancia corporation sinc th tur th century Short-ter Bond & Retention Liabilitie Mortgage Equitie Perio (% (% (% (% 1901-1 1923-2 1949-5 1979-8 Tha observatio i no dependen o nettin use fro sources Issue o long ter liabilitie an share average a follows 1950-5 1960-6 1970-7 1980-8 Long-ter liabilitie 7. 10. 5. -. Share 11. 14. 8. 8.
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33 Financia Systems Corporat Finance an Economi Developmen However i shoul b born i min tha pre an post-197 dat ar no directl comparable Fo th perio show i tabl 12.1 larg firms ar define a thos wit capita employe o mor tha £4.1 million Goldsmit (1958 record a simila distinctio betwee smal an larg firms i th Unite State i a earlier period Gros financing proportion fo th perio 1946 were Retention Ban Loan Trad Credi Bond & Mortgage Equitie Othe 30 larg corporation 59. 7. 14. 8. 11. Al othe corporation 53. 22. 12. 5. 6. Researc o individua compan dat i severa countries no reporte here confirm tha electroni an pharmaceutica firms generall us littl externa finance. 10 Th ordering o Franc an Ital i th debt retention compariso an o Japa an th Unite State i th ne equity deb compariso ar reverse whe investmen i structure i considere instea o investmen i equipment Otherwis th ordering ar unaffected 11 Se Aghio an Bolto (1988) Se als Har an Moor (1989 an William so (1988) 12 Ther are o course numerou othe service tha Germa universa bank pro vid fo thei customers fo example bon an equit issuin facilities an portfoli managemen service fo investors I addition bank wer probabl a mor importan sourc o finance i earlier periods 13 Se Diamon (1989 fo a theor o choic betwee ban an bon finance tha consisten wit this 14 Ther i n statistica adjustmen i Germany Instead adjustment ar mad t recorde item t eliminat an discrepancy 15 Fo a convincin demonstratio o thi poin se Fishe an McGowa (1983) Se als Harcour (1965) Reference Aghion P. an P Bolton 1988 A incomplet contrac approac t bankruptc an th financial structur o th firm. Mimeograph Aoki M 1984 The economics of the Japanese firm. Amsterdam Nort Holland Carrington J C an G T Edwards 1979 Financing industrial investment. Lon don Macmillan Corbett J 1987 Intemtiona perspective o financing: Evidenc fro Japan Oxford Review of Economic Policy 3:30-55 Diamond D W 1989 Monitorin an reputation Th choic betwee ban loan an directl place debt Mimeograph Edwards J. an K Fischer 1990 The German financial system. Forthcoming Fisher F. an J McGowan 1983 O th misus o accountin rate o retur t infe monopol profits American Economic Review 73:82-97
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33 Coli Maye Goldsmith R W 1958 Financial intermediaries in the American economy since 1900. Princeton N.J. Princeto Universit Press Goldsmith R W 1965 The flow of capital funds in the postwar economy. Ne York Nationa Burea o Economi Research Goudie A W. andG Meeks 1986 Company finance and performance. Cambridge Universit o Cambridge Harcourt G C 1965 Th accountan i a golde age Oxford Economic Papers 12:66-80 Hart O. an J Moore 1989 Defaul an renegotiation A dynami mode o debt Mimeograph King M. an D Fullerton 1984 The taxation of income from capital. Chicago Universit o Chicag Press Knight A 1988 Th Deutsch Ban an industr pos 1945 Interpretin th evi dence Mimeograph Mayer C P 1987 Financia system an corporat investment Oxford Review of Economic Policy 3:i-xvi 1988 Ne issue i corporat finance European Economic Review 32:1167 89 1989a Financ an investment Mimeograph 1989b Myth o th West Lesson fro develope countrie fo developmen finance Worl Ban discussio pape an backgroun pape fo th 198 Worl Ban Developmen Report Myers S C 1984 Th capita structur puzzle Journal of Finance 39:575-97 Myers S C an N S Majluf 1984 Corporat financin an investmen decision whe firm hav informatio tha investor d no have Journal of Financial Eco- nomics 13:187-222 OECD 1986 Margina ta rate o th us o labou an capita i OEC countries OECD Economic Studies 7:45-99 1989 Economies in transition: Structural adjustment in OECD countries. Paris OECD Rybczynski T M 1988 Financia system an industria restructuring National Westminster Bank Quarterly Review, 3-13 Schonfield A 1965 Modern capitalism: The changing behaviour of public and pri- vate power. Oxford Oxfor Universit Press Taggart R A 1985 Secula pattern i th financin o U.S corporations I Cor- porate capital structures in the United States, ed B M Friedman Chicago Uni versit o Chicag Press Williamson O 1988 Corporat financin an corporat governance Journal of Fi- nance 43:567-91 Worl Bank 1989 World development report 1989: Financial systems and develop- ment. Ne York Oxford

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