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Comparing financial systems: a structural analysis

Sylvain Champonnois

No 702, Working Paper Series from European Central Bank

Abstract: This paper builds a model of investment and financing that incorporates heterogeneous firms into general equilibrium. In order to characterize the financial structure of an economy, the model connects the share of market finance in total external finance and the distribution of firm sizes into a simple structural equation, with parameters related to the cost of market finance (compared to intermediated finance). We estimate the relative cost of market finance across countries with data on external financing and firm sizes from France, Germany, Italy, Spain and the United Kingdom. Using the structural model, we propose an explanation of the empirical correlation across countries between estimated financing costs and the characteristics of the population of firms based on welfare maximization. JEL Classification: E20, E44, C13

Keywords: distribution of firm sizes; financing patterns; heterogeneous firms; structural estimation; welfare analysis (search for similar items in EconPapers)
Date: 2006-12
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Citations: View citations in EconPapers (4)

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