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Patterns of Corporate Financing and Financial System Convergence in Europe
Author(s) -
Murinde Victor,
Agung Juda,
Mullineux Andy
Publication year - 2004
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/j.1467-9396.2004.00476.x
Subject(s) - convergence (economics) , economics , capital market , equity (law) , bond market , bond , corporate finance , finance , panel data , debt , order (exchange) , capital structure , indirect finance , context (archaeology) , pecking order , financial system , macroeconomics , econometrics , paleontology , biology , political science , law , evolutionary biology
The paper investigates the possibility of convergence in the European Union (EU) in terms of the patterns of corporate financing by banks, bond markets, and stock markets; and in the context of whether the economies are converging towards an Anglo‐Saxon (capital‐market‐oriented) or a continental (bank‐oriented) financial system. GMM estimation of a dynamic fixed‐effects model is implemented to test for conditional and unconditional convergence using a panel of flow of funds data for the period 1972–1996 for seven EU member countries. It is found that the pattern of corporate financing is consistent with the pecking order theory of financing choices. Overall, the evidence suggests convergence of the EU financial systems on a variant of the Anglo‐Saxon model, depicting heavy reliance on internal financing as well as direct financing via equity and bond markets, while bank debt is becoming relatively less important.