Introduction

There have been debates about the role of financial systems in corporate activity for the best part of a century. A consensus view is yet to emerge as to whether cross-country differences in the structure of financial, corporate, and legal systems have any causal influence on cross-country economic performance. But interest in this question has stimulated attempts to assemble data banks on financial and corporate systems that allow international comparisons to be performed. The objective of this essay is to review these debates, to present additional empirical evidence, and to put forward some new interpretations of this evidence.

We begin in Section 2 with the debates about the comparative merits of different financial, corporate, and legal systems for economic performance. These debates have a long history. Until recently, they primarily took the form of bilateral country comparisons on, for example, the role of banks in comparative British and German industrial performance since the late nineteenth century. The positive role of the German banking system in promoting German industrialization through the provision of external finance frequently acquired the status of a “stylized fact” in the discussion of comparative performance. The influence of “bank” versus “market”-based financial systems was revisited in the examination of the postwar “Golden Age” growth of the West European and Japanese economies. But more detailed empirical work, using individual firm and institution data, has frequently failed to identify the source of advantage of the German and Japanese systems.