In 1994 we published a book entitled Financial Innovation and Risk Sharing. We made the argument there that the degree of incompleteness in market structure, particularly the structure of financial markets, should be thought of as being endogenously determined. In the models we proposed there agents choose the design of securities subject to various constraints such as transaction costs.  An important question is what are the appropriate transaction costs and other frictions such as asymmetric information that should be included. This led us to the issue of how financial systems in different countries operate which is the subject of the current book. Even among economically advanced countries there is a large range of systems that are observed. How can these systems be understood? Why do some countries have significant stock markets while others do not?  Is the structure of the banking system important? Is one system best or does each have advantages and disadvantages? These are just some of the questions that immediately come to mind when comparing financial systems in different countries.

We are not the first to compare financial systems in different countries and we owe a large debt to those who have considered these issues before.  Rather than using conventional theory to try and understand differences in financial systems our approach has been to develop new theories to provide insights into these differences.  Along the way we have written a number of papers which have been published in various journals.  These are referenced at appropriate points in the book.

Many people have helped us during the writing of this book.  We are grateful for the many comments and suggestions in seminars and at conferences that we have received. Numerous people have provided written comments on earlier drafts of the book and on the related papers. In particular, we thank Linda Allen, Michael Brennan, Serdar Dinc, Xavier Freixas, Gary Gorton, Akiyoshi Horiuchi, Jan Krahnen, Michael Magill, Jose Marìn, Ernst Maug, Lubos Pastor, Martine Quinzii, Jean-Charles Rochet, A. Subrahmanyam, Anjan Thakor and numerous anonymous referees. We are particularly grateful to Jun Qian (QJ) for excellent research assistance and to Stephanie Hogue for her help in preparing the manuscript.  Finally, we thank the NSF and the Wharton Financial Institutions Center for financial support.
 

Section I:  Setting the Stage

Chapter 1: Comparing Financial Systems (.pdf format)
Chapter 2: The Historical Development of Financial Systems
Chapter 3: Institutions and Markets
Chapter 4: Corporate Governance
Chapter 5: The Limitations of Markets: The Classical View
 

Section II:  Competition Versus Insurance

Chapter 6: Intertemporal Smoothing
Chapter 7: Information and Resource Allocation
Chapter 8: Competition in Banking
Chapter 9: Financial Crises
Chapter 10: Renegotiation and Relationships
 

Section III:  The Role of the Firm

Chapter 11: Autonomous, Self-Financing Firms
Chapter 12: Objectives of Firms
 

Section IV:  Markets and Intermediaries

Chapter 13: Diversity of Opinion and Resource Allocation
Chapter 14: Costly Markets
Chapter 15: Innovations in Financial Services, Relationships and Risk Sharing

Chapter 16: Afterword

Bibliography