868 Part Ten Mergers, Corporate Control, and Governance
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Company financing in the United States is different from that in most other countries. The United
States not only has a large amount of bank loans outstanding, but there is also a large stock market
and a large corporate bond market. Thus the United States is said to have a market-based financial
system. Stock market value is also high in the United Kingdom, but bank loans are much more
important than the bond market. However, this is because the U.K. is an international banking cen-
ter, so the bank loan figure includes eurocurrency loans. The figure does not represent just domestic
loans. In Europe, Japan, and emerging Asia,^2 bank financing again outpaces bond markets, but the
stock market is relatively small. Most countries in Europe, including Germany, France, Italy, and
Spain, have bank-based financial systems. So do many other Asian countries, including Japan.
Let’s look at these regions from a different perspective. Figure 33.2 shows the financial
investments made by households, again scaled by GDP.^3 (“Households” means individual
investors.) Household portfolios are divided into four categories: bank deposits, insurance
policies and mutual and pension funds, equity securities, and “other.” Notice in Figure 33.2
the differences in the total amounts of financial assets. Summing the columns for each coun-
try and region, the amount of financial assets is 334% of GDP in the United States, 281% in
the United Kingdom, 288% in Japan, and 186% in Europe. This does not mean that European
investors are poor, just that they hold less wealth in the form of financial assets. Figure 33.2
excludes other important investment categories, such as real estate or privately owned busi-
nesses. It also excludes the value of pensions provided by governments.
In the United States, a large fraction of households’ portfolios is held directly in equity
securities, mostly common stocks. Therefore individual investors can potentially play an
important role in corporate governance. Direct equity holdings are smallest in Japan. Japanese
households could not play a significant direct role in corporate governance even if they wanted
to. They can’t vote shares that they don’t own.◗ FIGURE 33.1
Value of financial claims in 2013, percentage
of GDP.
Sources: Data from Global Financial Stability Report, October
2014, IMF. We are grateful to Michael Chui for this figure.United
StatesUnited
KingdomEuro area Japan Emerging
Asia010050150200300350250400450PercentBank assets
Stock market
Private bond market(^2) Emerging Asia here includes China, Hong Kong SAR, India, Indonesia, Korea, Malaysia, Philippines, Singapore, Taiwan-China,
and Thailand.
(^3) Data for Asia are not available for this and the following figures that summarize portfolio allocations.