Banks, Financial Markets and Growth

Luca Deidda and B. Fattouh

Working Paper CRENoS from Centre for North South Economic Research, University of Cagliari and Sassari, Sardinia

Abstract: We analyze the interaction between bank and market finance in a model where bankers gather information through monitoring and screening.We show that,if a market is established characterized by a disclosure law such that entrepreneurs wishing to raise market finance can credibly disclose their sources of financing,this might undermine bankers incentive to screen,even when screening is effcient.Correspondingly,other things being equal,the change from a bank-based system to one in which market-finance and bank-finance coexist might have an adverse affect on economic growth.Consistent with this result,our empirical findings suggest that,althoug both bank and stock market development have a positive effect on growth, the growth impact of bank development is reduced by the development of the stock market.

Keywords: bank-finance; market-finance; economic growth; monitoring; screening (search for similar items in EconPapers)
JEL-codes: E44 G10 G20 O40 (search for similar items in EconPapers)
Date: 2005
New Economics Papers: this item is included in nep-dev, nep-fin, nep-fmk and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Journal Article: Banks, financial markets and growth (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:cns:cnscwp:200511

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