investments, may have a large impact, as suggested by our preliminary results, when portfolio limits happen to be binding. In addition, policy interventions should be based upon a precise evaluation of the interaction between institutional investors and other components of the financial system (especially banks), and should strongly avoid creating a captive source of funds.

There exists a rich literature that explores the effect of the institutional environment on firm financing choices in specific countries and across countries. Overall, it confirms that the institutional environment, together with the real characteristics of firms, determines the capital structures of firms.

First, the legal approach, led by La Porta and al. (1998), shows how legal traditions and specific creditors and minority shareholders rights shape the access to external finance and the corporate ownership structures around the world. Second, Rajan and Zingales (1995) and Demirguc-Kunt and Maksimovic (1995) document crosscountry regularities in the correlation between corporate financial structures and various firms’ characteristics. Demirguc-Kunt and Maksimovic (1996) explore the impact of stock market development on firms’ leverage and Demirguc-Kunt and Maksimovic (1999) extend this analysis by looking more closely at the institutional and legal determinants of capital structure. They find that how much the firm can grow by relying on external finance does depend on the legal environment.<sup>11</sup> Rajan and Zingales (1998) and Carlin and Mayer (1999) disentangle the financial, legal and technological factors that determine firms’ access to external finance. Third, others highlight the impact of particular institutional arrangements on firms’ external financing possibilities (see for instance Hoshi, Kashyap and Scharfstein (1991)). Fourth, firms’ characteristics will affect the financing choices: for instance firms try to match the maturity of their assets and liabilities (See Caprio and Demirguc-Kunt (1997) for a discussion). Moreover, informational asymmetries affect the choice of security when seeking for external finance, and restrict the feasibility set (see, among others,<sup>12</sup> Barclay and Smith (1995), Stoh and Mauer (1996), Myers and Majluf (1984), Rajan (1992), Petersen and Rajan (1994), Diamond (1991), Jensen and Meckling (1976), Myers (1977)). Overall, the existing literature confirms that the institutional environment, together with the real characteristics of firms, determines the capital structures of firms.

The rest of the paper is organized as follows. Section 2 briefly lists the potential mechanisms that explain why the development of contractual savings institutions may modify the corporate financing patterns. Section 3 sketches a model of firms’ financing choices and provides a benchmark for discussing the interaction between informational issues and corporate capital structures in the context of contractual savings development. Section 4 introduces the data and discusses the variables used. Section 5 reports crosscountry empirical results. Finally, Section 6 is devoted to a discussion of our results and of policy implications.

> 11 See Beck, Demirguc-Kunt, Levine, and Maksimovic (2000) for a synthetic approach, at three different levels (firms, industries and countries).

> 12 See the survey by Harris and Raviv (1991) and Stulz (2000).

3