CHAPTER 2

The Spanish Institutional Context

2.1 Background: The Inherited System

The recent literature on financial economics emphasizes how the financial system interacts with the mechanisms of corporate governance and with the performance of the firms. In this framework, the size of the banking sector and the size and liquidity of the stock market are related to the ownership structure of the firms and thus, to the way in which the control of the firms is exerted.

As stated in Chapter 1, countries have been traditionally classified into two groups on the basis of the orientation of the financial system: Bank-oriented versus market-oriented system. But what explains the differences in the financial systems of the countries? The most widely ...

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