7
The “outsider” system can be also characterised as a market-based system, inasmuch as it relies
heavily on the capital market as a means of influencing behaviour. The system is also characterised
by a legal and regulatory approach that favours use of the public capital markets and is designed to
build confidence among non-controlling investors. In countries with outsider systems, the legal
framework supports clearly the right of shareholders to control the company and makes the board and
the management explicitly accountable to the shareholders.
5
The legal and regulatory regime was developed on the assumption that a dispersed body of investors
own the company, that these investors act in isolation from each other and that they need reliable and
adequate information flows in order to make informed investment decisions. Regulation has
traditionally been structured to provide relatively complete information to investors and to create
relative equality among investors regarding access to information. Thus, the system can be described
as “disclosure-based”.
6
Some market-based systems have elaborate rules to prevent groups of
shareholders from communicating and sharing information among themselves without making
information available to all shareholders. Regulatory authorities have traditionally been willing to
allow investors to assume risk as they see fit, even though they have usually enforced strict disclosure
standards to prevent investors from being deceived about the actual amount of risk being assumed.
Unlike many insider systems, which thrived in bank-dominated environments, there have traditionally
been two channels of financial intermediation in outsider systems. In the banking sector, finance has
tended to be short-term and banks have tended to maintain “arms’ length” relationships with corporate
clients. Most of these countries had traditions of an independent investment banking (or merchant
banking) sector as well as specialised securities market intermediaries. Equity finance also tended to
be relatively important with low debt equity ratios being the norm. Also, reflecting the tradition of
wide equity ownership, equities tended to represent a high share of financial assets and a high share of
GDP (see Table 3).
5
See La Porta et al (1997).
6
See Fox (1998).
8
Table 3. Market capitalisation of listed domestic equity issues
as per cent of GDP at year-end
1975
1980
1985
1990
1993
1994
1995
1996
Australia (Assoc. of SE)
22
40
37
37
71
67
70
80
Austria
3
3
7
17
16
16
14
15
Belgium
15
8
26
33
37
36
37
44
Canada (Toronto and Vancouver)
30
45
45
43
61
59
66
86
Denmark
11
8
26
30
31
34
33
41
Finland
..
..
..
17
28
39
35
49
France
10
8
15
26
36
34
33
38
Germany (Assoc. of SE)
12
9
29
22
24
24
24
28
Greece
..
..
..
..
..
..
14
19
Ireland
..
..
..
..
..
..
40
49
Italy
1
5
6
14
14
15
18
19
21
Japan
28
36
71
99
68
77
69
66
Korea
..
..
..
43
42
50
40
29
Mexico
..
..
..
16
50
31
32
32
Netherlands
21
17
47
42
58
67
72
95
New Zealand
..
..
39
20
56
53
53
56
Norway
..
..
16
23
24
30
30
36
Spain
32
8
12
23
25
25
27
33
Sweden
3
10
37
40
58
66
75
95
Switzerland
2
30
42
91
69
114
109
129
136
Turkey
..
..
..
..
20
17
12
17
United Kingdom
37
38
77
87
122
114
122
142
United States (NYSE, Amex, and
Nasdaq)
3
48
50
57
56
81
75
98
114
1. Italy - All Italy on a net basis since 1985
2. Switzerland - only Zurich through 1990.
3. United States - including foreign shares in 1975.
Source: Fédération internationale des Bourses de valeurs and OECD Secretariat estimates.