Working paper series / Johann-Wolfgang-Goethe-Universität Frankfurt am Main, Fachbereich Wirtschaftswissenschaften : Finance & Accounting
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125
A widely recognized paper by Colin Mayer (1988) has led to a profound revision of academic thinking about financing patterns of corporations in different countries. Using flow-of-funds data instead of balance sheet data, Mayer and others who followed his lead found that internal financing is the dominant mode of financing in all countries, that financing patterns do not differ very much between countries and that those differences which still seem to exist are not at all consistent with the common conviction that financial systems can be classified as being either bank-based or capital market-based. This leads to a puzzle insofar as it calls into question the empirical foundation of the widely held belief that there is a correspondence between the financing patterns of corporations on the one side, and the structure of the financial sector and the prevailing corporate governance system in a given country on the other side. The present paper addresses this puzzle on a methodological and an empirical basis. It starts by comparing and analyzing various ways of measuring financial structure and financing patterns and by demonstrating that the surprising empirical results found by studies that relied on net flows are due to a hidden assumption. It then derives an alternative method of measuring financing patterns, which also uses flow-of-funds data, but avoids the questionable assumption. This measurement concept is then applied to patterns of corporate financing in Germany, Japan and the United States. The empirical results, which use an estimation technique for determining gross flows of funds in those cases in which empirical data are not available, are very much in line with the commonly held belief prior to Mayer’s influential contribution and indicate that the financial systems of the three countries do indeed differ from one another in a substantial way, and moreover in a way which is largely in line with the general view of the differences between the financial systems of the countries covered in the present paper.
33
A widely recognized paper by Colin Mayer (1988) has led to a profound revision of academic thinking about financing patterns of corporations in different countries. Using flow-of-funds data instead of balance sheet data, Mayer and others who followed his lead found that internal financing is the dominant mode of financing in all countries, that therefore financial patterns do not differ very much between countries and that those differences which still seem to exist are not at all consistent with the common conviction that financial systems can be classified as being either bank-based or capital market-based. This leads to a puzzle insofar as it calls into question the empirical foundation of the widely held belief that there is a correspondence between the financing patterns of corporations on the one side, and the structure of the financial sector and the prevailing corporate governance system in a given country on the other side. The present paper addresses this puzzle on a methodological and an empirical basis. It starts by demonstrating that the surprising empirical results found by Mayer et al. are due to a hidden assumption underlying their methodology. It then derives an alternative method of measuring financing patterns, which also uses flow-of-funds data, but avoids the questionable assumption. This measurement concept is then applied to patterns of corporate financing in Germany, Japan and the United States. The empirical results are very much in line with the commonly held belief prior to Mayer’s influential contribution and indicate that the financial systems of the three countries do indeed differ from one another in a substantial way.
142
We investigate the connection between corporate governance system configurations and the role of intermediaries in the respective systems from a informational perspective. Building on the economics of information we show that it is meaningful to distinguish between internalisation and externalisation as two fundamentally different ways of dealing with information in corporate governance systems. This lays the groundwork for a description of two types of corporate governance systems, i.e. insider control system and outsider control system, in which we focus on the distinctive role of intermediaries in the production and use of information. It will be argued that internalisation is the prevailing mode of information processing in insider control system while externalisation dominates in outsider control system. We also discuss shortly the interrelations between the prevailing corporate governance system and types of activities or industry structures supported.
87a
Access to loans and other financial services is extremely valuable for micro-, small- and medium-sized enterprises in developing and transition countries as it enables their owners as well as their employees to exploit their economic potential and to increase their income. Although this insight has lead development aid institutions to undertake many attempts to create sustainable microfinance institutions, only a small fraction of these has been successful so far. This article analyses what determines the success of attempts to provide financial services in general, and credit in particular, to low income target groups in these countries. We argue that it is crucial to understand, and to mitigate or even eliminate in practice, the serious and numerous incentive problems at the level of the lending operations as well as those at the levels of the human resource management and the governance of microfinance institutions. We attempt to show moreover, that unsolved incentive problems at only one level will ultimately undermine any potential success at the other levels. In our paper, we first analyse information and incentive problems from a theoretical perspective, using and extending the well-known Stiglitz-Weiss model of credit rationing, and derive theoretical requirements for solutions of these problems. In the light of these considerations, we then discuss how problems are solved in practice. Section 3 deals with the credit relationship. Section 4 extends the argument by showing how incentive problems within the institution can be handled, and section 5 analyses corporate governance-related problems of development finance institutions as incentive problems. In section 6 it is demonstrated why, and how, the incentive problems at the different levels, as well as their solutions, are interrelated. From this we derive the proposition that, as the institutional devices for dealing with these problems constitute a complementary system, any sustainable solution requires consistent arrangements of all elements and at all levels of the system. In the last section we will show the potential of strategic networks to set up institutions which we consider to be consistent systems for successfully solving the problems at all three levels simultaneously.
27
In a series of recent papers, Mark Roe and Lucian Bebchuk have developed further the concept of path dependence, combined it with concepts of evolution and used it to challenge the wide-spread view that the corporate governance systems of the major advanced economies are likely to converge towards the economically best system at a rapid pace. The present paper shares this skepticism, but adds several aspects which strengthen the point made by Roe and Bebchuk. The present paper argues that it is important for the topic under discussion to distinguish clearly between two arguments which can explain path dependence. One of them is based on the role of adjustment costs, and the other one uses concepts borrowed from evolutionary biology. Making this distinction is important because the two concepts of path dependence have different implications for the issue of rapid convergence to the best system. In addition, we introduce a formal concept of complementarity and demonstrate that national corporate governance systems are usefully regarded as – possibly consistent – systems of complementary elements. Complementarity is a reason for path dependence which supports the socio-biological argument. The dynamic properties of systems composed of complementary elements are such that a rapid convergence towards a universally best corporate governance systems is not likely to happen. We then proceed by showing for the case of corporate governance systems shaped by complementarity, that there even is the possibility of a convergence towards a common system which is economically inferior. And in the specific case of European integration, "inefficient convergence" of corporate governance systems is a possible future course of events. First version December 1998, this version March 2000.
075
Since the beginning of the 1990s, it has been widely expected that the implementation of the European Single Market would lead to a rapid convergence of Europe’s financial systems. In the present paper we will show that at least in the period prior to the introduction of the common currency this expected convergence did not materialise. Our empirical studies on the significance of various institutions within the financial sectors, on the financing patterns of firms in various countries and on the predominant mechanisms of corporate governance, which are summarised and placed in a broader context in this paper, point to few, if any, signs of a convergence at a fundamental or structural level between the German, British and French financial systems. The German financial system continues to appear to be bank-dominated, while the British system still appears to be capital market-dominated. During the period covered by the research, i.e. 1980 – 1998, the French system underwent the most far-reaching changes, and today it is difficult to classify. In our opinion, these findings can be attributed to the effects of strong path dependencies, which are in turn an outgrowth of relationships of complementarity between the individual system components. Projecting what we have observed into the future, the results of our research indicate that one of two alternative paths of development is most likely to materialise: either the differences between the national financial systems will persist, or – possibly as a result of systemic crises – one financial system type will become the dominant model internationally. And if this second path emerges, the Anglo-American, capital market-dominated system could turn out to be the “winner”, because it is better able to withstand and weather crises, but not necessarily because it is more efficient.
40
This paper studies the incentives of German firms to voluntarily disclose cash flow statements over time. While cash flow statement are mandated under many GAAP regimes, its disclosure has not been mandatory in Germany until recently. Nevertheless, an increasing number of firms provides cash flow statements voluntarily. These firms are likely to be influenced by recommendations of the German accounting profession, IAS 7 as well as the respective standards of other countries. The idea of the paper is to study this influence by looking at the adoption pattern over time and the format of the cash flow statement. It documents the development of voluntary cash flow statement disclosures by German firms with respect to ”milestones” in the evolution of German professional recommendations and respective international standards. The cross-sectional determinants of voluntary and international cash flow statements are analyzed using probit regressions and factor analysis. The results are generally consistent with the idea that capital-market forces drive voluntary cash flow statements that are in line with international reporting practice.