the assessment finance law and growth this article reviews the development of corporate finance from domestic analyses to international comparisons of financial systems to comparative corporate governance to law and finance and most recently to politics and finance it describes how both theoretical developments and empirical evidence have guided this research agenda it considers the lessons that can be learnt from the newly emerging literatures and considers the policy implications that can be derived it argues that while strong policy prescriptions are frequently proposed there are many unresolved theoretical and empirical issues which suggest that caution should be exercised in drawing policy conclusions

universal banks and corporate control evidence from the global syndicated loan market we investigate the effects of bank control over borrowerfirms whether by representation on boards of directors or by the holding of shares through bank asset management divisions using a large sample of syndicated loans we find that banks are more likely to act as lead arrangers in loans when they exert some control over the borrower firm bank firm governance links are associated with higher loan spreads during the 2003 2006 credit boom but lower spreads during the 2007 2008 financial crisis additionally these links mitigate credit rationing effects during the crisis the results are robust to several methods to correct for the endogeneity of the bank firm governance link our evidence consistent with intertemporal smoothing of loan rates suggests that there are costs and benefits from banks involvement in firm governance jel g21 g32

business groups and internal capital markets the recovery of the mexican economy in the aftermath of the 1995 crisis in the second half of the nineties the mexican economy experienced a severe financial crisis however as the initial panic subsided mexico started to show promising signals of macroeconomic recovery not only did the economy rebound within a year but also grew steadily afterward averaging an annual rate slightly above 5 during 1996 2000 in this article it is suggested that the business group structure helped in the recovery of the economy the collapse of the banking system and the interruption of financing flows through the domestic financial markets was overcome by a change in the firms capital structure firms when possible started to depend more on trade credit and the internal capital market of business groups created a financial cushion that kept the economy working in order to offer a rationale for the mexican experience a theoretical model is presented where it is shown that moral hazard problems are reduced within a business group as long as affiliated firms in the nontradable sector surrender control rights during periods of crisis copyright 2007 oxford university press

the emergence and persistence of the anglo saxon and german financial systems we use a moral hazard model to compare monitored nontraded bank loans and traded nonmonitored bonds as sources of external funds for industry we contrast the theoretical conditions that favor each system with the historical conditions prevailing when these financial systems evolved during the british and german industrial revolutions to study persistence we consider an entry model where financiers take the industrial structure as given when they lend and firms take the financial system as given when they borrow we show multiple equilibria can exist compare equilibria in welfare terms and discuss their robustness to coordination between lenders and borrowers copyright 2004 oxford university press

does competition from new equity mitigate bank rent extraction insights from japanese data previous research shows that bank information production mitigates asymmetric information problems however this literature has ignored the concern that firms with better growth prospects are more vulnerable to bank rent extraction this paper points out that funding competition from new equity as an effective natural mechanism solves this important concern using japanese data from 1983 to 1997 we show that the relationship between loan to debt ratio and growth while starting significantly negative consistent with holdup theory turns significantly positive towards the high end of the growth spectrum we confirm that high growth firms raise more new equity than do low growth firms and use more equity relative to bonds in external finance this is consistent with a generalized myers majluf framework these results suggest that for high growth firms when competition from public debt lessens due to increased growth based valuations competition from new equity steps in to restrain bank rent extraction

strategic transparency and informed trading will capital market integration force convergence of corporate governance dominant investors can influence the publicly available information about firms by affecting the cost of information collection under strategic competition transparency results in higher variability of profits and output thus lenders prefer less transparency since this protects firms when in a weak competitive position while equity holders prefer more market interaction creates strategic complementarity in gathering information on competing firms thus entry by transparent competitors will improve price informativeness moreover as the return to information gathering increases with liquidity increasing global trading may undermine the ability of bank control to keep firms opaque

industry growth and capital allocation does having a market or bank based system matter are market based or bank based financial systems better at financing the expansion of industries that depend heavily on external finance facilitating the formation of new establishments and improving the efficiency of capital allocation across industries we find evidence for neither the market based nor the bank based hypothesis while legal system efficiency and overall financial development boost industry growth new establishment formation and efficient capital allocation having a bank based or market based system per se does not seem to matter much

institutional investment patterns and corporate financial behavior in the united states and japan abstract this paper examines the agency problem between shareholders and debtholders of japanese and u s firms whereas u s institutional investors are restricted from doing so japanese financial institutions take large equity positions in firms to which they lend particularly in firms more susceptible to the agency problem debt ratios of u s firms are negatively related to the firm s potential to engage in risky suboptimal investments whereas japanese debt ratios show no such relation the evidence is consistent with the notion that the agency problem is mitigated to a greater degree in japan than in the u s

capital formation in japan introduction this chapter analyses the relationship between the input of capital and economic growth in japan during the past century the assigned task of exploring the role of investment in japan necessarily imposes a certain sectoral as well as temporal emphasis only relatively little attention will have to be devoted to agriculture since this sector never became an important recipient of either public or private capital in japan at least an understanding of the advances created by a rising level of investment deals largely with the growth of modern nonagricultural industry this also means that unlike taira and yamamura we must concentrate especially on the history of the twentieth century when factories machines and new social overhead implements reached sizeable dimensions for the first time of course no attempt will be made to slight the crucial transitional years of the meiji era or even the preceding years of tokugawa rule but one should always keep at the forefront the sharp distinction between the hesitant beginnings of economic modernization in the late nineteenth century and its full flowering during the past sixty odd years one further limiting item should be mentioned at the outset we are concerned with the input of capital i e with the investment rather than the saving side of the equation how the necessary funds were raised by individuals banks the state or foreigners will be treated only as a side issue but to a considerable extent this matter has been studied by other authors

bank information monopolies and the mix of private and public debt claims this article examines the determinants of the mix of private and public debt using detailed information on the debt structure of 250 publicly traded corporations from 1980 through 1990 we find that the relationship between bank borrowing and the importance of growth opportunities depends on the number of banks the firm uses and whether the firm has public debt outstanding for firms with a single bank relationship the reliance on bank debt is negatively related to the importance of growth opportunities in contrast among firms borrowing from multiple banks the relationship is positive

increasing returns and competitive equilibrium the content and development of marshall s theory this paper reviews alfred marshall s attempts to reconcile increasing returns and competition from the early economic writings to the later editions of his principles it is shown that while marshall s final solution to the problem involved naming external economies the cause of increasing returns in a regime of competition both the life cycle of the firm and internal economies remained necessary to his argument their function was to give some operation al content to the elusive concept of external economies copyright 1992 by oxford university press

financial systems financing constraints and investment empirical analysis of oecd countries this paper investigates the influence of cash flow on corporate investment in 11 oecd countries we find that the sensitivity of investment levels to internally available funds differs significantly across countries and is lower in countries with predominantly close bank firm relationships than in countries with predominantly arm s length bank firm relationships at the same time we find no relationship of the levels of financial constraints to indicators of overall financial development our results are consistent with the view that information and incentive problems in the capital market have important effects on corporate investment and that close bank firm relationships can reduce these problems and thus improve the access of firms to external finance

financial structure and economic growth recent empirical work on financial structure and economic growth analyzes multi country dataset in panel and or cross section frameworks and concludes that financial structure is irrelevant we highlight their shortcomings and re examine this issue utilizing a time series and a dynamic heterogeneous panel methods our sample consists of fourteen countries tests reveal that cross country data cannot be pooled financial structure significantly explains output levels in most countries the results are rigorously scrutinized through bootstrap exercises and they are robust to extensive sensitivity tests we also test for several hypotheses about the prospective role of financial structure and financial development on economic growth

capital markets and firm organization how financial development shapes european corporate groups we investigate the effect of financial development on the formation of european corporate groups because cross country regressions are hard to interpret in a causal sense we exploit exogenous industry measures to investigate a specific channel through which financial development may affect group affiliation internal capital markets using a comprehensive firm level data set on european corporate groups in 15 countries we find that countries with less developed financial markets have a higher percentage of group affiliates in more capital intensive industries this relationship is more pronounced for young and small firms and for affiliates of large and diversified groups our findings are consistent with the view that internal capital markets may under some conditions be more efficient than prevailing external markets and that this may drive group affiliation even in developed economies this paper was accepted by bruno cassiman business strategy

toward an economic model of the japanese firm i owe a great deal to professor moses abramovitz who suggested that i write this article i appreciate his constant encouragement and guidance which aided me throughout its preparation i am also indebted to three anonymous referees of the journal and to professors ryutaro komiya and michael riordan for their critical comments and helpful suggestions needless to say i am solely responsible for the views expressed in this paper

economics and the self organisation approach alfred marshall revisited the economics of alfred marshall is reassessed in the light of new developments in the natural sciences whereby a nonequilibrium thermodynamic approach is adopted to analyze self organization in dissipative structures it is argued that there is a clear correspondence between marshall s treatment of time irreversibility and this modern approach particularly when the latter is set in an informational context thus his principles is viewed as a very useful starting point in adapting the self organization approach for application in economics the main features of such a post marshallian approach to economics are discussed and compared with the mechanical approach of neoclassicism copyright 1993 by royal economic society

bank firm relationships financing and firm performance in germany abstract close bank firm relationships that characterize the financial systems in germany and japan are often credited for reducing agency costs and increasing access to capital thus improving the performance of firms critics of these banking systems cite the alternative possibility that conflicts of interests may also arise from both the banks multiple roles with the firm and the opportunity the banks have to use private information to shift risk or to otherwise participate in rent seeking activities we extend the empirical literature by systematically investigating the impact of bank influence on the financing choices and performance of the firm we find that bank influenced firms in germany do benefit from increased access to capital there is however no evidence to support the hypothesis of either higher profitability or growth for bank influenced firms results suggest that the interest payments to debt ratio is significantly higher for bank influenced firms which supports the hypothesis that german universal banks may engage in rent seeking activities and provides evidence of a conflicting interests between creditors and shareholders

bank information monopoly and trade credit do only banks have information about small businesses according to previous studies a bank can set a higher interest rate for small firms by establishing a lending relationship since information asymmetry limits competition between banks therefore the bank can acquire monopoly rent from small firms however if small firms can use trade credit which is another financial source the bank cannot extract monopoly rent in this article we examine whether small firms can use trade credit if the bank sets a higher interest rate using panel data of small firms in japan our analysis shows that when the interest rate the bank sets is too severe or worsened for the borrower the ratio of trade payables increases and the bank loses its amount of loans this result implies that trade creditors alleviate the problems of bank information monopolies in japan

banks equity stakes and lending evidence from a tax reform abstract we study how a bank s equity stake in a borrowing firm affects lending to that firm similar to prior papers we find a positive association between a bank s equity stake in a borrowing firm and lending to that firm while such a positive cross sectional correlation may be due to equity stakes benefiting lending it may also be driven by endogeneity to distinguish the two explanations we study a german tax reform that permitted banks to sell their equity stakes tax free after the reform many banks sold their equity stakes but did not reduce lending to the firms this observation is robust to several alternative model specifications control groups and time windows our findings suggest that banks equity stakes may be less important for lending than previously thought

bank discrimination holding bank ownership and economic consequences evidence from china abstract this paper finds that compared with chinese state owned firms non state owned firms have a greater propensity to hold significant ownership in commercial banks these results are consistent with the notion that because non state owned firms are more likely to suffer bank discrimination for political reasons they tend to address their financing disadvantages by building economic bonds with banks we also find that among non state owned firms those that hold significant bank ownership have lower interest expenses and are less likely to increase cash holdings but more likely to obtain short term loans when the government monetary policy is tight these results suggest that the firms building economic bonds with banks can enjoy benefits such as lower financial expenses and better lending terms during difficult times finally we find that non state owned firms with significant bank ownership have better operating performance overall we find that firms can reduce discrimination through holding bank ownership

monetary analysis the equilibrium method and keynes s general theory compared with the work of his contemporaries keynes s general theory represented a radical change in theoretical method from sequence analysis to the method of equilibrium the nature of this change is discussed together with its implications for the substance of keynes s message and for the subsequent development of macroeconomics

lending competition and credit availability for new firms empirical study with the price cost margin in regional loan markets abstract in this paper i present statistical evidence of the impact of lending competition on credit availability for new firms a discrete time duration analysis with respect to the years from the start up to the first loan approval by a commercial bank or a cooperative bank which is collected from survey data in japan shows that the higher price cost margin pcm of banks which reflects the existence of a quasi rent for a bank improves the credit availability for younger firms additional analysis to detect the regional determinants of the pcm of banks shows that the share of larger banks in each local credit market has a negative and significant impact on the pcm in light of the existing empirical finding that smaller banks are more likely to provide relationship banking these findings provide indirect evidence for the hypothesis that the intensity of relationship banking in each local credit market increases the pcm and this encourages banks to extend a loan to new firms so that they can pre empt the opportunity to establish lending relationships that are expected to yield such quasi rents

review of hoshi and kashyap s corporate financing and governance in japan examining the development of the japanese financial system since the meiji era hoshi and kashyap derive a number of interesting propositions on the evolution of bank centered financing its contribution to rapid growth and its future transformation they argue that the piecemeal approach to deregulation is one of the main reasons for the current banking crisis and conclude that japan will shift to a capital market based financial system like the one in the united states or in prewar japan hoshi and kashyap s work makes an important contribution as a coherent long term overview of japan s bank centered financial system

an analysis of cooperative research and development i analyze the effects of cooperative research whereby member firms agree to share the costs andfruits of a research project before they undertake it in this model industrywide agreements tend to have socially beneficial effects when the degree ofproduct market competition is low when there are r d spillovers in the absence of cooperation when a high degree of sharing is technologically feasible and when the agreement concerns basic research rather than development activities i show that a royalty free cross licensing agreement among any number offirms lowers the equilibrium level of innovation even though it increases the efficiency of r d through sharing

does the influence of institutional investors depend on the institutional framework an international analysis this article analyses the effect of institutional ownership in alleviating or exacerbating the conflicts of interests among stakeholders in different legal and institutional frameworks this analysis is carried out based on two characteristics the concentration of power of institutional ownership and the identification of the main types of institutional investors in common law countries consistent with the convergence and entrenchment hypotheses we find a u shape relation between ownership structure and firm performance in civil law countries consistent with the collusion and contest theories we find an inverted u shape relation we also find that when institutional investors are classified as pressure resistant and pressure sensitive according to the strength of their ties with managers pressure resistant investors who operate more independently are the most capable of improving the value of the firm

investment banks as corporate monitors in the early twentieth century united states we study the effect of financial relationships on firms investment decisions and access to external finance in the early twentieth century securities underwriters commonly held directorships with american corporations section 10 of the clayton antitrust act prohibited bankers from serving on the boards of railroads for which they underwrote securities we find that following the implementation of section 10 railroads with strong preexisting relationships with underwriters saw declines in their investment rates valuations and leverage and increases in their costs of external funds reassuringly we do not observe similar effects among industrials and utilities which were not subject to section 10 our results are consistent with underwriters on corporate boards acting as delegated monitors and highlight the potential for regulations intended to address conflicts of interest to disrupt valuable information flows

on the misuse of the profits sales ratio to infer monopoly power the common use of the profits sales ratio as a measure of the lerner index of monopoly power is flawed even with the assumption of constant returns because of problems connected with the valuation of capital the size of the error is related to the cost of capital the growth rate of the firm the depreciation method used and most important the shape of the stream of benefits resulting from an investment examples show that the error can be quite large further the error is likely to be systematically related to the variables used in regression studies

deregulation disintermediation and agency costs of debt evidence from japan abstract many japanese firms reduced dependence on banks following financial deregulation in the 1980s the financial architecture of japanese firms after liberalization provides an opportunity to investigate the choice of financing with public bonds versus monitored bank loans examination of accounting and stock price data for a sample of japanese firms in the late 1980s suggests that debt structure is related to variables that serve as proxies for agency costs of debt in particular we find that the proportion of bond debt is inversely related to growth opportunities while the proportion of bank debt is positively related to growth opportunities

financial intermediaries markets and growth we build a model in which financial intermediaries provide insurance to households against idiosyncratic liquidity shocks households can invest in financial markets directly if they pay a cost in equilibrium the ability of intermediaries to share risk is constrained by the market from a growth perspective this can be beneficial because intermediaries invest less in the productive technology when they provide more risk sharing our model predicts that bank oriented economies can grow more slowly than more market oriented economies which is consistent with some recent empirical evidence

financial intermediaries ownership structure and monitored finance evidence from japan this paper introduces new and unique data from 127 japanese private equity funds that enable a first ever direct comparison of individual owner manager structures versus financial intermediation structures in terms of the governance provided to investee companies through private equity funds the data indicate individual owner manager structures financial disintermediation give rise to much smaller portfolios of entrepreneurial firms and more advice to entrepreneurs across the scope of different financial intermediation structures including banks life insurance companies securities firms corporations and government bodies there are further differences in the provision of governance and value added advice provided to investees the data further indicate us affiliated funds in japan are more likely to have smaller portfolios and provide more advice to entrepreneurial companies possibly due to a greater skill set in providing advice to facilitate the development of small entrepreneurial firms

financial intermediation and delegated monitoring this paper develops a theory of financial intermediation based on minimizing the cost of monitoring information which is useful for resolving incentive problems between borrowers and lenders it presents a characterization of the costs of providing incentives for delegated monitoring by a financial intermediary diversification within an intermediary serves to reduce these costs even in a risk neutral economy the paper presents some more general analysis of the effect of diversification on resolving incentive problems in the environment assumed in the model debt contracts with costly bankruptcy are shown to be optimal the analysis has implications for the portfolio structure and capital structure of intermediaries

advertising and post entry oligopoly behaviour this paper uses a two stage methodology to examine the advertising response to new entry by incumbent firms in the first stage time se ries regressions are employed to identify the advertising responses for a sample of forty two companies in consumer goods markets in the second stage cross section analysis is used to model the factors that might explain the post entry increase in advertising the results suggest a systematic response by dominant firms in static markets and support the view that entry deterring behavior is most likely where other entry barriers ar e already present copyright 1988 by blackwell publishing ltd

the impact of business group affiliation on performance evidence from china s national champions an important aspect of china s economic reforms has been an ambitious policy to develop 100 or so large internationally competitive business groups very little is known about these national champion groups or the benefits to subsidiary firms of belonging to them this study building from insights and methods used in existing literature examines the performance of subsidiaries affiliated to china s national champion groups our results find that they perform comparatively well we discuss possible reasons for this finding and comment more generally on the important role that business groups now play in china s reform and development

the performance implications of relationship banking during macroeconomic expansion and contraction a study of japanese banks social relationships and overseas expansion we propose a social perspective emphasizing the opportunities and constraints of bank firm relationships to understand the determinants of relationship banks performance using japanese banks to test our theory using social exchange and role theories we found banks that have strong social relationships performed differently during japan s macroeconomic expansion and contraction cycles however our results indicate that social exchange and role relationships are context specific banks benefited from internationalization during a domestic macroeconomic expansion as a result of their home country social relationships but they were less constrained by the same social relationships in their international operations during a domestic macroeconomic contraction

shareholding in the keiretsu japan s financial groups largest debtholders in keiretsu member companies hold more stock if the companies have high debt to equity ratios or have weaker collateral greater prospects of growth or unique aspects all are factors associated with the agency problems of debt that stockholding by a debtholder can help to resolve the stockholding also induces greater borrowing by these same companies ceteris paribus copyright 1993 by mit press

do banking shocks affect borrowing firm performance an analysis of the japanese experience from 1990 to 1993 the typical firm on the tokyo stock exchange lost more than half of its value and banks experienced severe adverse shocks we show that firms whose debt had a higher fraction of bank loans in 1989 performed worse from 1990 to 1993 and also invested less than other firms did this effect holds when we control for variables that affect firm performance we show further that exogenous shocks to banks during the negotiations leading to the basle accord affected bank borrowers significantly copyright 2000 by university of chicago press

the persistence and implications of japanese keiretsu organization this paper examines two important research questions 1 to what extent have recent economic and regulatory changes influenced the japanese inter corporate network 2 have the patterns of firm performance fostered by the japanese inter corporate system remained stable or has there been an evolution to more north american performance profiles using hierarchical regressions to compare patterns of networking and firm performance with data from the periods 1987 to 1991 and 1992 to 1997 we find little evidence to support the existence of significant changes in the patterns and implications of japanese industrial organization we conclude that the keiretsu system remained strongly in place throughout the first half of the 1990s nevertheless we suggest that the continued move toward globalization of capital markets in japan and ongoing regulatory change may potentially impact networking and performance implications in the 21st century

marshall s theory of value the role of external economies the view that marshall relied upon the assumption of external economies in his attempt to reconcile the existence of competition and decreasing long run average costs continues to attract many supporters however it is argued here that in marshall s writings external economies were to play only a very minor role in the reconciliation exercise subsequent writers emphasis on the role of external economies is shown to reflect a lack of understanding of the object of marshall s as opposed to the marshallians reconciliation problem

investor protection and corporate governance recent research has documented large differences among countries in ownership concentration in publicly traded firms in the breadth and depth of capital markets in dividend policies and in the access of firms to external finance a common element to the explanations of these differences is how well investors both shareholders and creditors are protected by law from expropriation by the managers and controlling shareholders of firms we describe the differences in laws and the effectiveness of their enforcement across countries discuss the possible origins of these differences summarize their consequences and assess potential strategies of corporate governance reform we argue that the legal approach is a more fruitful way to understand corporate governance and its reform than the conventional distinction between bank centered and market centered financial systems

effects of main bank switching on new business bankruptcy abstractthis paper examines the effects of main bank switching on the probability of bankruptcy of new small businesses using a propensity score matching estimation approach we use a unique firm level dataset of approximately 1 000 small and medium sized enterprises smes incorporated in japan these smes are young and unlisted just after incorporation we find that switching main bank relationships increases the probability of firm bankruptcy in addition the result holds only when the relationship between the firm and its main bank is terminated specifically the probability of bankruptcy increases when firms switch their main banks to financial institutions with which they have not previously transacted and when the ex post main banks are not affiliated financial institutions of their ex ante main banks these results may be because such switching worsens the financial condition of client firms and thus it leads to bankruptcy

is relationship lending still a mixed blessing a review of advantages and disadvantages for lenders and borrowers relationship lending is a common lending technology that is assumed to bring several benefits to small medium enterprises smes and to financial institutions that adopt it notably it could reduce information asymmetries permitting banks to offer better credit terms to the borrower however it also entails some costs for both sides the empirical evidence so far has not been conclusive in determining under what conditions relationship lending can be beneficial or harmful most of the studies suggest that smes that engage in relationship lending benefit from more credit availability especially during a financial crisis and lower interest rates this occurs when they are served by small banks are geographically close to the lender when the bank is adequately decentralized and when it is the dominant creditor of the firm however under certain circumstances banks can extract rents from the borrower or be captured by him in addition the consequences and the future of relationship lending will be remarkably affected by the level of competition among banks their ownership structure the regulatory framework and the business model that banks will have to adopt accordingly

bank interest rates and credit relationships in italy abstract when evaluating the performance of a financial system in supporting the investment activity of the corporate sector a distinction is usually drawn between banking economies and market economies the former being characterized by long term relations between banks and the industrial sector although theoretical studies and empirical results seem to agree that lending relationships increase the available quantity of capital to firms they have little to say on the cost of bank credit it is not clear whether a close relationship with a main bank would allow the borrower to pay a lower interest rate or expose him to a monopolistic rent using a unique data set reporting detailed information on the evolution over time of individual bank borrower relationships in italy we show evidence that a main bank provides credit at a lower cost and that some competition helps to reinforce the commitment between the borrower and the bank

dominant institutional owners and firm value abstract this research analyzes the impact of control by dominant institutional owners banking institutions and investment funds on firm value the analysis considers the level of voting rights in the hands of the dominant institutional owner and other large shareholders the results reveal a different effect on value depending on whether the dominant institutional investor is a banking institution or an investment fund moreover the results show that the presence of other large shareholders affects firm value when a dominant institutional owner controls the firm

on the keynesian notion of equilibrium and dynamics harrod had always maintained that keynes s treatise was much more amenable for dynamic analysis than the general theory however in much of the later work on keynesian dynamics the general theory became the foundation in this paper i argue that recent developments in neoclassical general equilibrium theory have the effect of undermining the conventional keynesian conception of dynamics based on the general theory and recasting keynes as a coarse precursor of modern general equilibrium analysis opposing this renewed orthodox reinterpretation of keynes might require a reconsideration of the treatise as the foundation for an alternative keynesian dynamics 1996 academic press limited

the evolutionary firm and cournot s dilemma to transform this competence based approach into an evolutionary theory the con nection between the firm and veblen s concept of social knowledge is more fully devel oped once established the evolutionary theory of the firm is utilised to bypass marshall s reconciliation problem and solve cournot s dilemma

can pure play internet banking survive the credit crisis this paper positions the pure play internet banking model ppi as a hybrid business model that combines features of both relationship and transaction banking although in terms of customer orientation ppi banks may partly resemble relationship banks they lack their comparative advantage in generating borrower specific information instead the characteristic features of ppi banks are low costs and easy scalability while the latter may enable ppi banks to quickly capture market share it may also generate overexposure in risky markets we present a case study on ing direct one of the leading global ppi banks and address the sustainability of the ppi business model by comparing the ing direct foreign operations the findings for ing direct are validated using data for e trade bank we conclude that managing growth appears to be the prime challenge to ppi banks

financial structure corporate savings and current account imbalances abstract we explore the effects of a country s financial structure on its corporate savings and current account a financial system that relies relatively more on banks and less on the capital market presents more difficulties for small and medium sized enterprises to access external finance these firms find it necessary to accumulate more savings on their own as a result countries that have a less developed capital market are more likely to run current account surpluses or smaller current account deficits using panel data of 66 countries for the period 1990 2007 we find consistent and robust evidence in favor of this hypothesis further explorations based on firm level data reveal that firms especially smaller firms in economies with relatively underdeveloped capital markets do save significantly more than their counterparts in countries with relatively more developed capital markets

a market power based model of business groups we propose an model of vertically and horizontally integrated business groups that allows the number and size of each group to be determined endogenously we find that more than one configuration of groups can arise in equilibrium several different types of business groups can occur each of which are consistent with profit maximization and are stable we suggest that the strongly integrated groups arising in the model characterize the chaebol found in south korea whereas the less integrated groups describe those found in taiwan

libertad para competir en el mercado recursos procesos y resultados freedom to compete in the market resources processes and resultsherein we analyze three concepts of market competition although the different aspects of freedom can be appreciated in each one of them they make an especial contribution to some of them we propose that the neoclassical general equilibrium chiefly contributes to the discussion of the outcomes of an economic activity the barriers to entry approach calls for a study of the resources necessary to compete and the competition as a process approach emphasizes the competitive activity itself moreover as we move from the first onwards enriching the meaning of competition the possibility of losing opportunities to participate in the market becomes more evident entry and exit are part of the competitive process each concept of competition responds to theories that specify or allude to certain types and distribution of economic agents freedoms to manoeuvre throughout this study we often quote amartya sen with the purpose of buildingbridges between the study of competition and the approach of development as freedom

business groups and social welfare in emerging markets existing evidence and unanswered questions abstract this paper reviews existing studies of the role of emerging market business groups a ubiquitous but poorly understood organizational form i first suggest that understanding the definition of business groups is itself an interesting albeit under studied research issue i then argue that the existing evidence suggests that the performance effects of group affiliation are large and generally positive there is substantial evidence that part of this is due to welfare enhancing functions originating in the idea that groups substitute for missing outside institutions but that part is also due to welfare reducing minority shareholder exploitation evidence is lacking on the extent to which groups facilitate rent seeking or the exercise of market power evidence is also lacking on the extent to which groups hamper the future development of markets the paper identifies areas where research is needed before current competition policy experiments in countries like china india and korea can be evaluated

multiple banking relationships and the fragility of corporate borrowers abstract the widespread italian practice of multiple borrowing has been studied with respect to the continuity of bank lending and to the interest rates charged to individual borrowers however there is a lack of empirical evidence on the effects of multiple credit relationships over the fragility of the corporate borrowers two theses are competing one asserts that multiple borrowing results in a desirable sharing of risks the other that the parcellization of loans substantially weakens the discipline exercised by the banks and makes corporate borrowers more fragile through multivariate techniques we check whether the indicators describing the structure of lending relationships can help along with balance sheet variables to separate healthy from failed firms this exercise shows that multiple banking relationships are associated with a higher riskiness of the borrowers even though the impact is moderate in comparison with the importance of real and financial variables derived from balance sheets

dominant firms and their alleged decline abstract by way of a survey of recent literature on the theory of strategic competition this paper focuses on the question of whether dominant firms decline the traditional argument suggesting decline is found to be based on a rather unsatisfactory modelling of dominance and more acceptable conceptualizations suggest that such privileged positions will persist

financial development financial structure and domestic investment international evidence does it matter for domestic investment whether a country s financial system is bank based or stock market based this paper posits that financial intermediation affects domestic investment notably by alleviating financing constraints allowing firms to increase investment in response to increased demand for output the key result is that the structure of the financial system has no independent effect on investment in the sense that it does not enhance the response of investment to changes in output while financial development makes investment more responsive to output growth consequently rather than promoting a particular type of financial structure countries should implement policies that reduce transactions costs in financial intermediation and enforce creditor and investor rights this will facilitate the development of banks and stock markets which will stimulate domestic investment

long lasting bank relationships and growth of firms a puzzling but consistent result in the empirical literature on banking is that firms with close bank ties do not grow faster than bank independent firms in this paper we reconsider the link between relationship lending and firm growth distinguishing firms by size and expansion contraction conditions the idea is that the beneficial effects of relationship lending on information asymmetries can be compensated by other negative capture risk and externality effects which make relational banks reluctant to support long term growth projects of client firms and that the strength of these compensating effects varies with firm size and health status we explore the influence of long lasting bank relationships on employment and asset growth of a large sample of italian firms the main finding is that relationship lending hampers the efforts of small firms to increase their size while it mitigates the negative growth of troubled medium large enterprises

understanding the rise and decline of the japanese main bank system the changing effects of bank rent extraction this paper shows how main bank rent extraction affects corporate decisions about investment and financing during financial regulatory reform our model predicts that limited loanable funds can initially contain main bank controlled overinvestment even when new equity is available to the firm abundant funds facilitate overinvestment to the detriment of firm profitability a shift of control rights back to the firm due to financial deregulation produces an equity for upside potential and bank debt for downside risk bias against the banks a stock market and real estate boom in japan made it harder than ever for the banks to diversify risk the insights from this analysis help explain why japan s main bank system was beneficial in the capital constrained postwar period but became harmful during the capital abundant and even bubbly 1980s and why the adverse shocks of the post deregulation 1990s had such severe effects on the banking system

the neo ricardians focuses on the neoclassical theory of economics in great britain calculation for the standard commodity assumptions of piedro sraffa on the cycle of production functions of the rate of return ebsco

unnatural selection perverse incentives and the misallocation of credit in japan we examine the misallocation of credit in japan associated with the perverse incentives faced by banks to provide additional credit to the weakest firms firms are more likely to receive additional bank credit if they arein poor financial condition because troubled japanese banks have an incentive to allocate credit to severely impaired borrowers in order to avoid the realization of losses on their own balance sheets this evergreening behavior is more prevalent among banks that have reported capital ratios close to the required minimum and is compounded by the incentives arising from extensive corporate affiliations

corporate structure liquidity and investment evidence from japanese industrial groups this paper presents evidence suggesting that information and incentive problems in the capital market affect investment we come to this conclusion by examining two sets of japanese firms the first set has close financial ties to large japanese banks that serve as their primary source of external finance and are likely to be well informed about the firm the second set of firms has weaker links to a main bank and presumably faces greater problems raising capital investment is more sensitive to liquidity for the second set of firms than for the first set the analysis also highlights the role of financial intermediaries in the investment process

on the costs of a bank centered financial system evidence from the changing main bank relations in japan we examine the effects of bank firm relationships on firm performance in japan when access to capital markets is limited close bank firm ties increase the availability of capital to borrowing firms but do not lead to higher profitability or growth the cost of capital of firms with close bank ties is higher than that of their peers this indicates that most of the benefits from these relationships are appropriated by the banks finally the slow growth rates of bank clients suggest that banks discourage firms from investing in risky profitable projects however liberalization of financial markets reduces the banks market power the close relationship between manufacturing firms and financial institutions in japan has recently been at the center of the debate on the appropriate financial system for the reforming economies of eastern europe as opposed to the anglo saxon separation of finance and industry long term ties between main banks and their client firms involving bank loans bank equity holding and some bank appointed personnel which are common in japan and germany have often been described as a growth oriented financial system that could serve the needs of developing and reformed economiies better than anonymous capital markets modeled after the arnerican and british financial systems the claim that close ties between investmentoriented banks and industrial firms could help overcome the difficulties of relative backwardness dates back to gerschenkron 1962 who investigates european development rosovsky 1961 applies gerschenkron s framework to the analysis of japanese growth more recently aoki patrick and sheard 1994 hoshi kashyap and loveman 1994 and teranishi 1993 among others portray the close ties between finance and industry in japan as an important factor in the international competitiveness of modern japanese

the relation between firm growth and q with multiple capital goods theory and evidence from panel data on japanese firms we derive from a model of investment with multiple capital goods a one to one relation between the growth rate of the capital aggregate and the stock market based q we estimate the growth q relation using a panel of japanese manufacturing firms taking into account the endogeneity of q identification is achieved by combining the theoretical structure of the q model and an assumed serial correlation structure of the technology shock which is the error term in the growth q equation for early years of our sample cash flow has significant explanatory power over and above q the significance of cash flow disappears for more recent years for the heavy industry when japanese capital markets was liberalized the estimated q coefficient implies that the adjustment cost is less than a half of gross profits net of the adjustment cost

the assumption of constant returns to scale nicholas kaldor was right to maintain that this assumption is unrealistic but that does not mean that it is useless there are propositions that can be proved assuming it which would never have been found without it but that look as if they are independent of it two examples 1 paul samuelson s factor price equalization theorem in international trade and 2 the author s theory of relations between factors in production elasticity of substitution in a modern form p and q substitutes complements must be distinguished weakly related factors are p substitutes and q complements this is the only case when no more than two factors are present otherwise two factors out of many may be strong substitutes substitutes both ways or strong complements complements both ways the excluded case when they would be p complements and q substitutes appears in the presence of scale economies to be excluded a fortiori copyright 1989 by oxford university press

financial development and innovation led growth is too much finance better abstract we show that the expansion of financial sector may hurt innovative activities and hence the innovation led growth using data on 50 countries over the 1990 2016 period countries with higher level of financial development are found to have a smaller positive or insignificant effect on innovation the marginal effect of innovation on growth is a decreasing function of financial development using a dynamic panel threshold method we re examine the possible non linearity between finance innovation and growth we find that innovation exhibits an insignificant effect on output growth when credit to the private sector exceeds a threshold level of about 60 as a share of gdp these results are not driven by banking crises the long run effect of 2007 2008 financial crisis or the ongoing european sovereign debt crisis

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

the dynamics of competition a restoration of the classical analysis the main purpose of this article is to show that it is possible to construct a model of competition based on the classical perspective smith ricardo and marx an analysis of the work of the classics is presented and their views of the workings of competition is contrasted with neoclassical and keynesian approaches a simple model with two commodities is constructed in which the stability of the classical long term equilibrium is shown under certain conditions this first model is developed to include the treatments of gravitation rationing deficiency in demand choice of the technology and three commodities copyright 1987 by oxford university press

dominant firms and mergers the completion of the single european community ec market in 1992 is widely expected to result in substantial benefits which will come partly from increased allocative efficiency and partly from increased dynamic efficiency however if these benefits are to be fully realised one essential condition has to be met and that is the preservation of competitive markets economic integration has the immediate and benevolent effect of deconcentrating industries and promoting competition but there is no guarantee that this stimulus to competition will be sustained indeed past experience suggests that major upheavals in the economic environment which expose firms to more intensive competitive pressures may result in firms and governments adopting strategies designed to weaken the competitive impact these strategies include mergers and takeovers to maintain or strengthen positions of market dominance transnational cartels and government intervention to protect national champions an effective policy towards monopolies and mergers is generally regarded to be one important policy weapon for ensuring that economic integration results in the greatest possible benefit however in spite of this general agreement there is a great deal of uncertainty about what exactly should be done this paper examines some of the sources of this uncertainty and outlines the approach to monopoly and merger policy that is being adopted in the ec ii alternative approaches to monopoly and merger policy the two main systems for the control of market power are the cost benefit and structural approaches the cost benefit approach involves a case by case study of large firms to assess whether in each individual case the benefits of large size e g possible economies of scale increased foreign competitiveness outweigh or are outweighed by the costs i e increased market power thus the attitude that underlies this approach to policy is basically neutral no general stand is taken and the merits of competition versus market power are assessed in each case the structural approach is more radical and presumes that there is in general a positive link between intense competition and increases in social welfare competition and competitive market structures should thus be defended because the benefits from competition will outweigh any potential benefits from increased firm size thus the structural approach to the control of market power implies that large firms should be controlled by preserving or

institutional herding business groups and economic regimes evidence from japan we study institutional herding in japan japanese firms are primarily owned by financial institutions and other corporations they may belong to a business group the keiretsu and they have experienced several distinct economic regimes in its recent past overall we find herding in japan occurs on a lower level than in the united states but with a large impact on price movements the price impact is even greater for keiretsu affiliated firms we also find the effects and behavior of institutional herding depends on the economic condition and the regulatory environment

the effect of bank credit on asset prices evidence from the japanese real estate boom during the 1980s bernanke bs 2001 am econ rev v91 p253 doi 10 1257 aer 91 2 253 cargill thomas 2000 financial policy cen gerlach s 2005 j bank financ v29 p461 doi 10 1016 j jbankfin 2004 05 015 hoshi t 2000 nber macroecon annu v14 p129 hoshi t 1993 4421 nber hoshi t 2001 monetary ec studies v19 p1 hutchison m 1997 political ec japanes ito t 1996 monetary ec studies v14 p143 ito t 2004 japans lost decade o p17 kindleberger c 1978 financial crises the kitagawa h 1994 financial dev japan p81 kiyotaki n 1997 j polit econ v105 p211 doi 10 1086 262072 peek j 2000 am econ rev v90 p30 doi 10 1257 aer 90 1 30 petersen ma 2002 j financ v57 p2533 doi 10 1111 1540 6261 00505 ueda k 2000 crisis change japane p59 ueda k 1994 japanese main bank s p89 weinstein de 1998 j financ v53 p635 doi 10 1111 0022 1082 254893

competition in japan japan registered a remarkable 6 5 percent rate of economic growth from 1955 to 1990 catching up with high income western countries in its level of economic development during the 1950s 1960s 1970s and into the 1980s japan s share of world exports rose dramatically from 2 9 percent in 1960 to 6 1 percent in 1970 8 2 percent in 1980 and a peak of 9 8 percent in 1985 porter takeuchi and sakakibara 2000 japanese firms were increasingly successful internationally in large visible industries such as automobiles semiconductors and consumer electronics the striking economic success of japan was widely attributed to a set of economic institutions and policies that encouraged collaboration and limited competition the japanese case then called into question many of the bedrock assumptions of competition thinking it seemed to show that there was a different path to economic prosperity this article begins by examining competition in japan and the supporting policies and institutions during the twentieth century many factors seem to suggest that competition in japan has been less intense but there is an awkward complication the empirical evidence about the intensity of competition in japanese industry does not support the conclusion the story clearly is more complicated we seek to reconcile the apparent differences between policy and institutional circumstances and the empirical evidence by examining the types of competition that prevail across japanese industries and the underlying causes japan indeed pursued an array of policies that limited competition but these policies were not applied throughout the economy in fact those industries in which competition

on the classical theory of competition this paper identifies some important theoretical issues remaining unresolved in the wake of piero sraffa s seminal work a central problem concerns the process of gravitation towards uniform profit rates and production prices stringent requirements for convergence and stability are discussed the issue of path dependence being regar ded as most basic other issues concern inter and intraindustry mechanisms of competition choice of technique and technical change and mechanisms of wage profit rate determination prospects for advancing a theory of differentiated profit rates that would be consistent with classical theory are examined against this background it is suggested that sraffa s contribution encompasses two theoretically distinct research programs copyright 1988 by oxford university press

a comparative evaluation of sraffa s the laws of returns under competitive conditions and its italian precursor in his classic paper the laws of returns under competitive conditions piero sraffa 1926 p 535 noted that the opening pages of this article contain a summary of the con clusions of a paper which he wrote in italian with the title sulle relazioni fra costo e quantite prodotta sraffa 1925 it is my purpose here to compare the relative contri butions found in these two papers the first of which to the best of my knowledge has not appeared in english translation 1 sraffa s thesis that the marshallian partial equi librium analysis of prices and quantities is inadequate in the case of industries subject to variable costs acquires added stature from the clear and detailed exposition it received in his 1925 paper which also contains a critique of the analyses of variable returns of turgot j s mill cairnes edgeworth wicksteed pigou pantaleoni barone j n keynes and particularly marshall among others it is worthy of note that one of the major students and popularisers of sraffa s work a roncaglia holds the view that the 1925 article is today of greater interest for it concen trates on criticism of marshallian theory as well as providing diverse hints of great interest such as the analysis of spurious margins to which sraffa refers in the preface to production of commodities by means of commodities roncaglia 1978 p 19 2 roncaglia adds that the 1925 article greatly impressed the ageing edgeworth who as a co editor decided to invite sraffa to write a second article in the same vein for the