FEEM working papers "Note di lavoro" series
1999 .037

Security versus Bank Finance: the Importance of a Proper Enforcement of Legal Rules


Autori: Enrico C. Perotti, Franco Modigliani
Serie: Economy and Society
Editor: Fausto Panunzi
Tipo: Journal
Parole chiave: Financial systems,Enforcement of law,Investor protection
Numero JEL: G15,G30,K22,K42
JEL: International Review of Finance
Data: 2002

Abstract

We argue that in an unreliable enforcement regime, transactions tend to become intermediated through institutions or concentrated among agents bound by some form of private enforcement. Provision of funding shifts from risk capital to debt, and from markets to institutions with long term relations. When minority investors' rights are poorly protected, the ability of firms to raise equity capital is impaired, leading to less finance for new risky ventures. More generally, fewer firms will be financed with outside equity, resulting in a low capitalisation relative to GNP and a predominance of internal (unlisted) equity and bank lending over traded securities. We report some supporting evidence on a small set of countries on the correlation between investor protection and development of security markets. We use existing measures of investor protection and corruption, as well as a price measure, the premium on voting stock, which is related to the control premium. In countries where the voting premium is large, corporate financing is dominated by bank lending and equity markets are much smaller. The other indicators are also consistent with our hypothesis, although the sample size is limited.

Download file
Scarica il file PDF

FEEM Newsletter

Iscriviti per rimanere aggiornato.

I Suoi dati saranno trattati dalla Fondazione Eni Enrico Mattei. – Titolare del trattamento – per ricevere via posta elettronica la newsletter della Fondazione. Il conferimento dell’indirizzo e-mail è necessario alla fornitura del servizio. La invitiamo a consultare la Privacy Policy per ottenere maggiori informazioni a tutela dei Suoi diritti.

Questo Sito utilizza cookie tecnici e analytics, nonché consente l’invio di cookie di profilazione di terze parti.
Chiudendo questo banner o comunque proseguendo la navigazione sul Sito manifesti il tuo consenso all’uso dei cookie. Per ulteriori informazioni e per esprimere scelte selettive in ordine all’uso dei cookie vedi la   Cookie PolicyOk