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Financial regimes, capital structure, and growth

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  • Arnold, Lutz G.
  • Walz, Uwe

Abstract

We develop a growth model with endogenous technological progress in which the financial sector plays an explicit role. Thereby we discuss the role of different financial regimes in the growth process. We contrast a bank-dominated financial system with a market-dominated system. In the first one a financial intermediary (a bank) is able to solve informational problems, however, at a cost. There is learning by doing in the banking sector. We ask for circumstances under which one of the two regimes emerges. We show that history matters and that the emergence of the low-growth regime is feasible. Furthermore, in a second step we allow for an endogenous capital structure choice of firms and analyze the evolution of the financial system and capital structure over time.

Suggested Citation

  • Arnold, Lutz G. & Walz, Uwe, 1998. "Financial regimes, capital structure, and growth," Tübinger Diskussionsbeiträge 134, University of Tübingen, School of Business and Economics.
    • Handle: RePEc:zbw:tuedps:134
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    Cited by:

    1. Andres, Javier & Hernando, Ignacio & Lopez-Salido, J. David, 2004. "The role of the financial system in the growth-inflation link: the OECD experience," European Journal of Political Economy, Elsevier, vol. 20(4), pages 941-961, November.
    2. Pandow, Bilal, 2017. "Growth and performance of Indian mutual funds industry," MPRA Paper 83018, University Library of Munich, Germany.
    3. Graff, Michael & Karmann, Alexander, 2003. "What determines the finance-growth nexus? An endogenous growth model and empirical evidence," Dresden Discussion Paper Series in Economics 15/03, Technische Universität Dresden, Faculty of Business and Economics, Department of Economics.

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    More about this item

    Keywords

    Innovation; growth; financial regimes; capital structure;
    All these keywords.

    JEL classification:

    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

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