Financial economics: Difference between revisions
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Financial economics treats the [[financial system]] as an open interactive system dealing both in claims upon future goods and services, and in the allocation of the risks that are associated with such claims. | |||
(See the related articles subpage for definitions of the terms shown in italics in this article) | |||
==Financial systems== | |||
===Common features=== | |||
Financial systems vary, but most have the common features that are assumed to be in place for the purposes of this article. The essential functions of a financial system are taken to be both to connect prospective investors with investment opportunities, and to allocate risk in accordance with the preferences of prospective risk-takers. Its components are taken be ''corporations'', investors, ''financial intermediaries'' and ''regulatory authorities''; its instruments are taken to include a variety of types of shareholding, ''debt instruments'' and ''options'' that are traded in a variety of ''financial markets''; and its activities are taken to be governed by rules and practices administered by regulatory authorities. The financial activities of governments are the subject of a separate article on [[public finance]]. | |||
===Effects on economic performance=== | |||
The evidence strongly suggests that a well-developed financial system is good for economic growth, and although comparisons between systems in which companies get outside finance mainly by borrowing from the banks (as is said to happen in Germany<ref>[http://www.cepr.org/Pubs/bulletin/meets/368.htm Colin Mayer and Ian Alexander: ''Banks and Securities Markets: Corporate Financing in Germany and the UK'', CEPR Discussion Paper No. 433, June 1990.]</ref> and Japan) with ''equity-based systems'' in which companies get it mainly by issuing shares (as in the United States and Britain) have been inconclusive, they suggest that equity-based system are better for promoting hi-tech growth. <ref>[http://www.finance.ox.ac.uk/file_links/finecon_papers/1999fe08.pdf Wendy Carlin and Colin Meyer: '' How do Financial Systems affect Economic Performance?'', Said Business School University of Oxford 1999]</ref><ref>[http://www.res.org.uk/society/mediabriefings/pdfs/2002/February/carpenterpetersen1.asp Robert Carpenter and Bruce Petersen: '' Capital Market Imperfection: High-tech Investment and New Equity Financing'', Economic Journal 2002]</ref> | |||
==References== | |||
<references/> | |||
Revision as of 11:04, 21 February 2008
Financial economics treats the financial system as an open interactive system dealing both in claims upon future goods and services, and in the allocation of the risks that are associated with such claims.
(See the related articles subpage for definitions of the terms shown in italics in this article)
Financial systems
Common features
Financial systems vary, but most have the common features that are assumed to be in place for the purposes of this article. The essential functions of a financial system are taken to be both to connect prospective investors with investment opportunities, and to allocate risk in accordance with the preferences of prospective risk-takers. Its components are taken be corporations, investors, financial intermediaries and regulatory authorities; its instruments are taken to include a variety of types of shareholding, debt instruments and options that are traded in a variety of financial markets; and its activities are taken to be governed by rules and practices administered by regulatory authorities. The financial activities of governments are the subject of a separate article on public finance.
Effects on economic performance
The evidence strongly suggests that a well-developed financial system is good for economic growth, and although comparisons between systems in which companies get outside finance mainly by borrowing from the banks (as is said to happen in Germany[1] and Japan) with equity-based systems in which companies get it mainly by issuing shares (as in the United States and Britain) have been inconclusive, they suggest that equity-based system are better for promoting hi-tech growth. [2][3]
References
- ↑ Colin Mayer and Ian Alexander: Banks and Securities Markets: Corporate Financing in Germany and the UK, CEPR Discussion Paper No. 433, June 1990.
- ↑ Wendy Carlin and Colin Meyer: How do Financial Systems affect Economic Performance?, Said Business School University of Oxford 1999
- ↑ Robert Carpenter and Bruce Petersen: Capital Market Imperfection: High-tech Investment and New Equity Financing, Economic Journal 2002