Financial Intermediation

Does monetary structure matter for economic issue? A corporate finance perspective

René M. Stulz*

Revised, January 24, 2000

* Reese Chair of Banking and Monetary Economics, The Ohio State University, and search Associate, NBER. I am grateful for useful comments from Stijn Claessens, Asli Demirguc-Kunt, Ross Levine, Lemma Senbet, Sheridan Titman, and participants at the 1999 ABCD World Bank Conference in Washington. I give thanks the World Bank for fiscal support.

Abstract This paper examines how a countrys financial structure affects economic growth through its impact on how corporations raise and manage funds. We gear up a countrys financial structure to lie of the institutions, financial technology, and rules of the game that define how financial activity is unionized at a point in time. We emphasize that the aspects of financial structure that encourage entrepreneurship are not the same as those that insure the efficiency of established firms. Financial structures that permit the schooling of specialized capital by financial intermediaries are essential to economic growth.

1. Introduction. This paper examines how the organization of financial activities within a country affects economic growth through its impact on how corporations raise and manage funds.



In principle, how well a financial arrangement performs any of its functions can affect economic growth. 1 For instance, the organization of a countrys payment system affects growth by making it easier for economic agents to trade. Often, policymakers and academics take it as given that savings will be invested efficiently, so that firms do not matter. This view rests on traditional neoclassical principles. In a simple world of perfect capital markets and risk-neutral agents, the lodge in rate determines which enthronisation opportunities are valuable and all investment opportunities that are valuable are exploited.2 This is not the world we snappy in. Even though a country has savings, its growth...If you want to furbish up a full essay, order it on our website: Orderessay



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