What Is Patient Capital, and Who Supplies It?

Socio-Economic Review, October 2016

32 Pages Posted: 22 Oct 2016

See all articles by Richard Deeg

Richard Deeg

Temple University

Iain Hardie

University of Edinburgh

Date Written: October 21, 2016

Abstract

In comparative political economy (CPE), ‘patient capital’ (‘PC’) – primarily from relational banks – is central to categorizing national economies. Yet the rise of ‘market-based banking’ highlights the growing inability of commercial banks to be patient. This raises the question of whether alternative forms of PC exist, but CPE lacks a framework to consider PC provision by financial markets. We develop our concept of PC and a framework for determining the investors most likely to provide it - and under which conditions. We define PC as equity or debt whose providers aim to capture benefits specific to long-term investments and who maintain their investment even in the face of adverse short-term conditions for the firm. We argue for determining patience though three questions:

1. Is the investment (loan) anticipated to be short or long term?

2. Is the investor engaged with management in pursuit of short-term share price performance or creditworthiness?

3. What is the likelihood of exit because of concerns regarding short-term performance?

Our framework lays the a cornerstone for a new comparative theory of financial systems.

Keywords: corporate finance, financial institutions, financial markets, comparative political economy, varieties of capitalism

JEL Classification: G20, G32, P16

Suggested Citation

Deeg, Richard and Hardie, Iain, What Is Patient Capital, and Who Supplies It? (October 21, 2016). Socio-Economic Review, October 2016. Available at SSRN: https://ssrn.com/abstract=2856972

Richard Deeg (Contact Author)

Temple University ( email )

Philadelphia, PA 19122
United States

HOME PAGE: http://https://liberalarts.temple.edu/academics/faculty/deeg-richard

Iain Hardie

University of Edinburgh ( email )

Old College
South Bridge
Edinburgh, Scotland EH8 9JY
United Kingdom

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