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The Emergence and Persistence of the Anglo-Saxon and German Financial Systems

Author

Listed:
  • Sandeep Baliga

    (Kellogg Graduate School of Management, Northwestern University)

  • Ben Polak

    (Department of Economics, Yale University)

Abstract

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.

Suggested Citation

  • Sandeep Baliga & Ben Polak, 2001. "The Emergence and Persistence of the Anglo-Saxon and German Financial Systems," Economics Working Papers 0005, Institute for Advanced Study, School of Social Science.
    • Handle: RePEc:ads:wpaper:0005
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    Cited by:

    1. Chakraborty, Shankha & Ray, Tridip, 2007. "The development and structure of financial systems," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 2920-2956, September.
    2. Crafts, Nicholas, 2017. "The Postwar British Productivity Failure," CAGE Online Working Paper Series 350, Competitive Advantage in the Global Economy (CAGE).
    3. Burhop, Carsten, 2006. "Did banks cause the German industrialization?," Explorations in Economic History, Elsevier, vol. 43(1), pages 39-63, January.
    4. Stefano Ugolini, 2021. "The coevolution of banks and corporate securities markets: The financing of Belgium’s industrial take-off in the 1830s," Business History, Taylor & Francis Journals, vol. 63(6), pages 892-913, August.
    5. Gorton, Gary & Winton, Andrew, 2003. "Financial intermediation," Handbook of the Economics of Finance, in: G.M. Constantinides & M. Harris & R. M. Stulz (ed.), Handbook of the Economics of Finance, edition 1, volume 1, chapter 8, pages 431-552, Elsevier.
    6. Monnet, Cyril & Quintin, Erwan, 2007. "Why do financial systems differ? History matters," Journal of Monetary Economics, Elsevier, vol. 54(4), pages 1002-1017, May.
    7. Demid Golikov, 2005. "Financial Intermediary In Monetary Economics: An Excerpt," Macroeconomics 0510018, University Library of Munich, Germany.
    8. Katheryn N. Russ & Diego Valderrama, 2009. "Financial Choice in a Non-Ricardian Model of Trade," NBER Working Papers 15528, National Bureau of Economic Research, Inc.
    9. Sebastian A.J. Keibek, 2016. "Using probate data to determine historical male occupational structures," Working Papers 26, Department of Economic and Social History at the University of Cambridge, revised 21 Mar 2017.
    10. Timothy W. Guinnane, 2002. "Delegated Monitors, Large and Small: Germany's Banking System, 1800–1914," Journal of Economic Literature, American Economic Association, vol. 40(1), pages 73-124, March.
    11. Florian Kiy & Theresa Zick, 2020. "Effects of declining bank health on borrowers’ earnings quality: evidence from the European sovereign debt crisis," Journal of Business Economics, Springer, vol. 90(4), pages 615-673, May.
    12. Guinnane, Timothy W., 2001. "Delegated Monitors, Large and Small: The Development of Germany's Banking System, 1800-1914," Center Discussion Papers 28447, Yale University, Economic Growth Center.
    13. Tarantino, Emanuele, 2013. "Bankruptcy law and corporate investment decisions," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2490-2500.
    14. Cho, Ilhyun & Contessi, Silvio & Russ, Katheryn N. & Valderrama, Diego, 2019. "Financial choice and international trade," Journal of Economic Behavior & Organization, Elsevier, vol. 157(C), pages 297-319.
    15. Franz R. Hahn, 2003. "Financial Development and Macroeconomic Volatility. Evidence from OECD Countries," WIFO Working Papers 198, WIFO.
    16. David Chambers & Carsten Burhop & Brian Cheffins, 2016. "The Rise and Fall of the German Stock Market, 1870-1938," Working Papers 25, Department of Economic and Social History at the University of Cambridge, revised 21 Sep 2016.
    17. Xu Guangdong, 2021. "Reassessing the Literature on the Relationship Between Financial Structure and Economic Growth," Review of Economics, De Gruyter, vol. 72(2), pages 149-182, August.
    18. Chaibi, Hasna & Ftiti, Zied, 2015. "Credit risk determinants: Evidence from a cross-country study," Research in International Business and Finance, Elsevier, vol. 33(C), pages 1-16.
    19. Mr. Julien Allard & Mr. Rodolphe Blavy, 2011. "Market Phoenixes and Banking Ducks Are Recoveries Faster in Market-Based Financial Systems?," IMF Working Papers 2011/213, International Monetary Fund.

    More about this item

    Keywords

    Monitoring; Traded Debt; Anglo-Saxon and German Financial Institutions; Industrialization; Internal and External Economies; Moral Hazard and Free Entry;
    All these keywords.

    JEL classification:

    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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