Financial Markets Reform, Patterns of Corporate Finance, and the Continued Dominance of Large Banks: Israel 1985-95
Posted: 19 Aug 1998
We examine the impact of capital markets reform on patterns of corporate finance in Israel, focusing on the role of banks in the Israeli financial system, and in particular on whether their role has changed following a decade of liberalization. Our main finding is that, although external financing through equity issues on stock markets (in Israel and abroad) has increased, the financial system is still bank dominated. Using a simple model, we suggest that continued bank dominance may reflect a deliberate strategy of the (universal) banks to restrict competition in arm's length capital markets by strengthening bank-firm relationships. Similar phenomena may well be expected in other countries.
JEL Classification: E44, G21, G32
Suggested Citation: Suggested Citation