Market- vs. bank-based financial systems: do investor rights really matter?

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  • 1 January 2002
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      • Published in RePEc
Abstract
Why are common-law countries market-dominated and civil-law countries bank-dominated when either financial structure can promote economic growth? This paper provides an explanation tied to legal traditions. Civil-law courts have been less effective in resolving conflicts than common-law courts because civil-law judges traditionally refrain from interpreting the codes and creating new rules. Banks can induce borrowers to honor their obligations by threatening to withhold services that only banks can provide.
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