DEPOSIT INSURANCE AND EXTERNAL FINANCE |
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| Authors: | STEPHEN G. CECCHETTI STEFAN KRAUSE |
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| Affiliation: | Professor, International Business School, Mail Stop 021, Brandeis University, P.O. Box 9110, Waltham, MA 02454 and National Bureau of Economic Research. Phone 1-781-736-2249, Fax 1-781-736-2269, E-mail;Assistant Professor, Department of Economics, Emory University, Atlanta, GA 30322. Phone 1-404-727-2944, Fax 1-404-727-4639, E-mail |
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| Abstract: | In this article we examine one potential explanation for the cross-country differences in the importance of banks and capital market financing of investment. We provide both an equilibrium model predicting and empirical evidence showing that countries with explicit deposit insurance and a high degree of state-owned bank assets have smaller equity markets, a lower number of publicly traded firms, and a smaller amount of bank credit to the private sector. Finally, our results suggest that the effects of deposit guarantees are more important than the origins of national legal systems. (JEL G21 , G22 , G32 ) |
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