Banks, Financial Markets and Growth

36 Pages Posted: 10 Nov 2005

See all articles by Bassam Fattouh

Bassam Fattouh

University of London - School of Oriental and African Studies (SOAS); University of London - Centre for Financial and Management Studies (CeFIMS)

Luca Deidda

Università degli Studi di Sassari - Department of Economics and Business; Universita di Cagliari - Centre for North South Economic Research (CRENOS)

Date Written: October 2005

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 efficient. 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 effect on economic growth. Consistent with this result, our empirical findings suggest that, although both bank and stock market development have a positive effect on economic growth, the growth impact of bank development is reduced by the development of the stock market.

Keywords: Bank-finance, market-finance, economic growth, screening, monitoring

JEL Classification: G10, G20, E44, O40

Suggested Citation

Fattouh, Bassam and Deidda, Luca, Banks, Financial Markets and Growth (October 2005). Available at SSRN: https://ssrn.com/abstract=841365 or http://dx.doi.org/10.2139/ssrn.841365

Bassam Fattouh

University of London - School of Oriental and African Studies (SOAS) ( email )

Thornhaugh Street
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London, WC1H 0XG
United Kingdom
+020 7898 4053 (Phone)
+020 7898 4089 (Fax)

University of London - Centre for Financial and Management Studies (CeFIMS)

Exhibition Road
London, WC1E 7HU
United Kingdom

Luca Deidda (Contact Author)

Università degli Studi di Sassari - Department of Economics and Business ( email )

via Muroni 25
Sassari, Sassari 07100
Italy

Universita di Cagliari - Centre for North South Economic Research (CRENOS) ( email )

Italy

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