Hostname: page-component-6bb9c88b65-bw5xj Total loading time: 0 Render date: 2025-07-23T05:27:58.223Z Has data issue: false hasContentIssue false
  • English
  • Français

Innovation, Information, and Financial Architecture

Published online by Cambridge University Press:  06 April 2009

Solomon Tadesse
Solomon Tadesse
Affiliation:
stadesse@umich.edu, Stephen M. Ross School of Business, University of Michigan, 701 Tappan St., Ann Arbor, MI 48109.
Get access Rights & Permissions [Opens in a new window]

Abstract

Does a financial system architecture anchored on banks perform better than one centered on markets in fostering technological innovations as engines of growth? In a panel of industrial sectors across a large cross section of countries, I find that while market-based systems have a general positive effect on innovations in all economic sectors, bank-based systems foster more rapid technological progress in more information-intensive industrial sectors, suggesting a heterogeneous impact of financial architecture. Thus, the relative performance of bank-based systems vis-à-vis market-based systems depends on the industrial structure of the economy.

Information

Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 41 , Issue 4 , December 2006 , pp. 753 - 786
Copyright
Copyright © School of Business Administration, University of Washington 2006

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

Article purchase

Temporarily unavailable

References

Acemoglu, D.; Johnson, S.; and Robinson, J. A.. “The Colonial Origins of Comparative Development: An Empirical Investigation.” American Economic Review, 91 (2001), 1369–1401.CrossRefGoogle Scholar
Allen, F. “Stock Markets and Resource Allocation.” In Capital Markets and Financial Intermediation, Mayer, C. and Vives, X., eds. Cambridge, MA: Cambridge University Press (1993).Google Scholar
Allen, F., and Gale, D.. “A Welfare Comparison of Intermediaries and Financial Markets in Germany and the U.S.” American Economic Review, 39 (1995), 179–209.Google Scholar
Allen, F., and Gale, D.. “Diversity of Opinion and the Financing of New Technologies.” Journal of Financial Intermediation, 8 (1999), 68–89.CrossRefGoogle Scholar
Allen, F., and Gale, D.. “Comparative Financial Systems: A Discussion.” In Credit, Intermediation and the Macroeconomy, Boot, A., Bhattacharya, S., and Thakor, A., eds. Oxford, England: Oxford University Press (2000a).Google Scholar
Allen, F., and Gale, D.. “Comparing Financial Systems”. Cambridge, MA: MIT Press (2000b).Google Scholar
Allen, S. “Technology and the Wage Structure.” NBER Working Paper No. 5534 (1996).CrossRefGoogle Scholar
Bagehot, W.Lombard Street. Homewood, IL: Irwin (1873) 1962 ed.).Google Scholar
Barro, R. J. “Economic Growth in a Cross Section of Countries.” Quarterly Journal of Economics, 106 (1991), 407–443.CrossRefGoogle Scholar
Barro, R., and Lee, J.. “International Comparisons of Educational Attainment.” Journal of Monetary Economics, 32 (1993), 363–394.CrossRefGoogle Scholar
Bartel, A. P., and Sicherman, N.. “Technological Change and Wages: An Interindustry Analysis.” Journal of Political Economy, 107 (1999), 285–325.CrossRefGoogle Scholar
Barth, M.; Kasznik, R.; and McNichols, M.. “Analyst Coverage and Intangible Assets.” Journal of Accounting Research, 39 (2001), 1–34.CrossRefGoogle Scholar
Beck, T.; Demirguc-Kunt, A.; and Levine, R.. “A New Database on Financial Development and Structure.” World Bank Economic Review, 14 (2000), 597–605.CrossRefGoogle Scholar
Beck, T., and Levine, R.. “Industry Growth and Capital Allocation: Does Having a Market- or Bank- Based System Matter?” Journal of Financial Economics, 64 (2002), 147–180.CrossRefGoogle Scholar
Bencivenga, V., and Smith, B.. “Financial Intermediation and Endogenous Growth.” Review of Economic Studies 58 (1991), 195–209.CrossRefGoogle Scholar
Bencivenga, V.; Smith, B.; and Starr, R.. “Transactions Costs, Technological Choice, and Endogenous Growth.” Journal of Economic Theory, 67 (1995), 153–177.CrossRefGoogle Scholar
Besley, T. “Property Rights and Investment Incentives: Theory and Evidence from Ghana.” Journal of Political Economy, 103 (1995), 903–937.CrossRefGoogle Scholar
Bhattacharya, S., and Chiesa, G.. “Financial Intermediation with Proprietary Information.” Journal of Financial Intermediation, 4 (1995), 328–357.CrossRefGoogle Scholar
Bhide, A. “The Hidden Cost of Stock Market Liquidity.” Journal of Financial Economics, 34 (1993), [31–51.CrossRefGoogle Scholar
Boot, A.; Greenbaum, S.; and Thakor, A.. “Reputation and Discretion in Financial Contracting.” American Economic Review, 83 (1993), 1165–1183.Google Scholar
Boot, A., and Thakor, A. V.. “Financial Systems Architecture.” Review of Financial Studies, 10 (1997), 693–733.CrossRefGoogle Scholar
Boyd, J., and Smith, B.. “The Co-Evolution of the Real and Financial Sectors in the Growth Process.” World Bank Economic Review, 10 (1996), 371–396.CrossRefGoogle Scholar
Boyd, J., and Smith, B.. “The Evolution of Debt and Equity Markets in Economic Development.” Economic Theory, 12 (1998), 519–560.CrossRefGoogle Scholar
Cetorelli, N., and Gambera, M.. “Banking Market Structure, Financial Dependence and Growth: International Evidence from Industry Data.” Journal of Finance, 56 (2001), 617–648.CrossRefGoogle Scholar
Claessens, S., and Laeven, L.. “Financial Development, Property Rights, and Growth.” Journal of Finance, 58 (2003), 2401–2436.CrossRefGoogle Scholar
Clarke, J., and Shastri, K.. “On Information Asymmetry Metrics.” Working Paper, University of Pittsburgh (2001).CrossRefGoogle Scholar
Cohen, J. “Financing Industrialization in Italy, 1894–1914.” Journal of Economic History, 27 (1967), 363–382.CrossRefGoogle Scholar
Demirguc-Kunt, A., and Levine, R.. Financial Structure and Economic Growth: A Cross-Country Comparison of Banks, Markets, and Development. Cambridge, MA: MIT Press (2001).CrossRefGoogle Scholar
Demirguc-Kunt, A., and Maksimovic, V.. “Funding Growth in Bank-Based and Market-Based Financial Systems: Evidence from Firm-Level Data.” Journal of Financial Economics, 65 (2002), 337–363.CrossRefGoogle Scholar
Dewatripont, M., and Maskin, E.. “Credit and Efficiency in Centralized and Decentralized Economies.” Review of Economic Studies, 62 (1995), 541–555.CrossRefGoogle Scholar
Fisman, R., and Love, I.. “Trade Credit, Financial Intermediary Development and Industry Growth.” Journal of Finance, 58 (2002a), 353–374.CrossRefGoogle Scholar
Fisman, R., and Love, I.. “Patterns of Industrial Development Revisited: The Role of Finance.” Working Paper, Columbia University (2002b).Google Scholar
Gerschenkron, A.Economic Backwardness in Historical Perspective, A Book of Essays. Cambridge, MA: Harvard University Press (1962).Google Scholar
Ginarte, J., and Park, W.. “Determinants of Patent Rights: A Cross-National Study.” Research Policy, 26 (1997), 283–301.CrossRefGoogle Scholar
Goldsmith, R. W.Financial Structure and Development. New Haven, CT: Yale University Press (1969).Google Scholar
Greenwood, J., and Jovanovic, B.. “Financial Development, Growth, and the Distribution of Income.” Journal of Political Economy, 98 (1990), 1076–1107.CrossRefGoogle Scholar
Grossman, S. “On the Efficiency of Competitive Stock Markets Where Traders Have Diverse Information.” Journal of Finance, 31 (1976), 573–585.CrossRefGoogle Scholar
Grossman, S., and Hart, O. D.. “Takeover Bids, the Free-Rider Problem, and the Theory of the Corporation.” Bell Journal of Economics, 1 (1980), 42–64.CrossRefGoogle Scholar
Hellwig, M. “Banking, Financial Intermediation, and Corporate Finance.” In European Financial Intermediation, Giovanni, A. and Mayer, C., eds. Cambridge, MA: Cambridge University Press (1991).Google Scholar
Hicks, J. R.A Theory of Economic History. Oxford, U.K.: Clarendon Press (1969).Google Scholar
Lach, S. “Patents and Productivity Growth at the Industry Level: A First Look.” Economic Letters, 49 (1995), 101–108.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “The Legal Determinants of External Finance.” Journal of Finance, 52 (1997), 1131–1150.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “Law and Finance.” Journal of Political Economy, 106 (1998), 1113–1155.CrossRefGoogle Scholar
La Porta, R.; Lopez-de-Silanes, F.; Shleifer, A.; and Vishny, R.. “The Quality of Government.” Journal of Law, Economics, and Organization, 15 (1999), 222–279.CrossRefGoogle Scholar
Levine, R. “Financial Development and Economic Growth: Views and Agenda.” Journal of Economic Literature, 35 (1997), 688–726.Google Scholar
Levine, R. “Bank-Based or Market-Based Financial Systems: Which is Better?” Journal of Financial Intermediation, 11 (2002), 398–428.CrossRefGoogle Scholar
Levine, R. “More on Finance and Growth: More Finance, More Growth?” Federal Reserve Bank of St. Louis Review, 85 (2003), 31–46.Google Scholar
Levine, R., and Zervos, S.. “Stock Markets, Banks, and Economic Growth.” American Economic Review, 88 (1998), 537–559.Google Scholar
Mayer, C. “Financial Systems, Corporate Finance, and Economic Development.” In Asymmetric Information, Corporate Finance and Investments, Hubbard, R. G., ed. Chicago, IL: University of Chicago Press (1990), pp. 307–332.Google Scholar
Morck, R., and Nakamura, M.. “Banks and Corporate Control in Japan.” Journal of Finance, 54 (1999), 319–340.CrossRefGoogle Scholar
National Science Foundation. Research and Development in Industry: 1990. NSF 94–304. Arlington, VA: National Science Foundation (1993).Google Scholar
Rajan, R. “Insiders and Outsiders: The Choice between Informed and Arms Length Debt.” Journal of Finance, 47 (1992), 1367–1400.Google Scholar
Rajan, R., and Zingales, L.. “Financial Dependence and Growth.” American Economic Review, 88 (1998), 559–587.Google Scholar
Rajan, R., and Zingales, L.. “Financial Systems, Industrial Structure and Growth.” Working Paper, University of Chicago (1999).Google Scholar
Saint-Paul, G. “Technological Choice, Financial Markets and Economic Development.” European Economic Review, 36 (1992), 763–781.CrossRefGoogle Scholar
Schumpeter, J. A.The Theory of Economic Development. Cambridge, MA: Harvard University Press (1912).Google Scholar
Solow, R. “Technical Change and the Aggregate Production Function.” Review of Economics and Statistics, 39 (1957), 312–320.CrossRefGoogle Scholar
Stern, S.; Porter, M.; and Furman, J.. “The Determinants of National Innovative Capacity.” NBER Working Paper No. 7876 (2000).CrossRefGoogle Scholar
Stiglitz, J. “Credit Markets and the Control of Capital.” Journal of Money, Credit and Banking, 17 (1985), 133–352.CrossRefGoogle Scholar
Stulz, R. “Financial Structure, Corporate Finance, and Economic Growth.” International Review of Finance, 1 (2000), 11–38.CrossRefGoogle Scholar
Tadesse, S. “Financial Architecture and Economic Performance: International Evidence.” Journal of Financial Intermediation, 11 (2002), 429–454.CrossRefGoogle Scholar
Tadesse, S. “The Allocation and Monitoring Role of Capital Markets: Theory and International Evidence.” Journal of Financial and Quantitative Analysis, 39 (2004), 701–730.CrossRefGoogle Scholar
Weinstein, D., and Yafeh, Y.. “On the Costs of a Bank-Centered Financial System: Evidence from the Changing Main Bank Relations in Japan.” Journal of Financial Economics, 532 (1998), 635–672.Google Scholar
Yoshi, K. “Information Disclosure Costs and the Choices of Financing Source.” Journal of Financial Intermediation, 4 (1995), 3–20.CrossRefGoogle Scholar