A common denominator of the market-based financial system as in the case of the United States and Great Britain and the bank-based financial system, such as in Germany or France, is to protect investors. United States are in the market system because the economy is largely dependent on the ownership and value of financial assets. As a result, it had large stocks and bond markets to create a large market, which attracts investors and companies from all over the world. This assumes that the units on the market (ie investors) play an important role in the critical field of finance and administration, as a large proportion of the individual portfolios held in the capital market. In addition, equity financing is practiced in this system.
On the other hand, the banking systems are mainly in financial assets held by financial institutions including banks, funds, insurance companies, pension funds and others. This means the direct equity investment is small at the same time the investments held primarily in bank deposits, insurance policies, pension funds and mutual etc debt financing comes mainly from banks rather than exchanges, and so the stock market is relatively small and less important in this type of economic system. The fact is that market-based financial systems, investors, property rights are well protected due to the fact that the shares and bonds markets are significant and represent a larger percentage of GDP. For example, in 2003, financial assets amounted to approximately 327% of GDP for the U.S. and 306% in the United Kingdom, which are based on prevailing market conditions in the financial systems compared to 192% in Europe, 267% in Japan, which tends to the bank-based dominant systems, a typical example of the socialist systems [1).
The large size of the stock market in terms of number of listed companies, the total value in relation to GDP and the initial public offering (IPO) in relation to the population impact on investor confidence and the quality of laws governing the market. Contrarily, insufficient protection of the integrity and minimize the size of the market economy, as seen in the dominant bank-based financial systems. Even in systems where the performance of shareholders and creditors in the market are also protected by the law, political trends and changes in government policy could impede the smooth functioning of these markets. There is a tendency for governments to gain more power and control in the enforcement of the laws governing the market at a time of deep economic recession.
An example is the failure of the financial market in 1929, which was followed by the government and the expansion of the Great Depression. However, as the law must be made to ensure the protection of investors, the extension of government control in the market can be very ambitious, in addition to reducing the efficiency of the market. Therefore lies with the federal government to critically examine the power and the reform is to control the market in order to avoid the rippling effect of market inefficiencies. Key market inefficiencies will come mainly from competition and loss of capital gains, not isolation from the political influence on investment decisions and operational. The market is privatization of the individual and so should be allowed to operate with some level of independence of the efficiency and profitability. Reforms are needed to ensure investor protection, and confidence remains robust reforms, if not handled carefully can negatively affect the markets.
These times are similar to the Great Depression and care should be taken to avoid the degeneration syndrome "protectionism" as practiced in some socialist systems. We need to learn through observation and experience, that the large size of the U.S. market is the result of a large number of foreign investment and companies and any failure in the market spills into the economy from the rest of the world.
Reference:
[1] CEIC Data Ltd, International Financial Statistics and national sources
Charles Horace Ampong holder masters degrees in engineering and management has a strong professional in the field of engineering, management, finance, accounting, economics and marketing, she worked as an engineer and analyst, and now works as a consultant to the GLG Councils. His current research includes risk management, international finance, financial modeling, derivatives, managerial economics and forecasting, management accounting, operations management, marketing, and advanced statistical analysis used in business management.
No comments:
Post a Comment