In some countries, such as Germany and Japan, banks have particularly close relations with their corporate customers, whereas in others, such as the UK and the US, relations between banks and industry are more distant. Banks in Germany and Japan might therefore be expected to have access to superior information than do their counterparts in the UK or the US.

In Discussion Paper No. 433 Programme Director Colin Mayer and Ian Alexander compare the structures of corporate financing in the German bank-based and UK market-based systems. In aggregate, sources of corporate financing in the two countries are remarkably similar; but large German firms pay out a lower proportion of their profits as dividends and finance a larger proportion of their investments from retentions than their UK counterparts. German banks extend more long-term finance to medium-sized firms but UK firms raise more new equity. Mayer and Alexander test alternative theories of corporate finance, and they find no evidence of a relation between finance and taxation and only limited support for explanations of finance based on `informational' theories. They conclude instead that `control' models of corporate finance are consistent with observed patterns of finance. These findings are presented more fully in Bulletin No. 40, in the report of a lunchtime meeting addressed by Colin Mayer.

Banks and Securities Markets: Corporate Financing in Germany and the UK
Colin Mayer and Ian Alexander

Discussion Paper No. 433, June 1990 (AM)