Comparative Analysis Of Financial Structures Based On Technological Innovation

The debate over market-based and bank-based financial structures lasted for about a century, in recent years, the depth and width of the research have been both improved greatly. Empirical analysis shows that it is less important for a country to have a market-based or bank-based financial structure, however, the overall development of financial systems are more critical to establishment of new firms, industry development and economic growth.Based on above researching results, this paper focuses on comparison of market-based and bank-based financial structures in fostering technological innovation activities and interactions between financial structure and technological innovation. We constructed a basic framework of three dimensions of information, risks and corporate governance, to compare the differences between market-based and bank-based financial structures in stimulating technological innovation of microeconomic, industry and macroeconomic levels. We found that key factors influencing effects of financial structures on technological innovation activities are characteristics, stages, effects of technological innovation and firm size. Market-based financial structure has comparative advantage in fostering technological innovation activities with greater uncertainties and more risks. As a result, it is more efficient in encouragement to establishment of new industries and new techno-economic paradigms. Market-based financial structures are not advantageous on other aspects of technological innovations except that. Innovation and economic development depend on more sophisticated financial structure and more development of financial system.The theoretical analysis consists of three parts.On the microeconomic level, we start from different functional mechanisms of market-based and bank-based financial structures over technological innovation of firms. Financial structures could function as information sharing, risk dispersion and corporate governance mechanisms in the process of firm activities. Financial markets are more efficient in information process when there are various kinds of opinions about the specific technological innovation activity of a firm, while banks would save check and monitor costs when the technological innovation activity is of common opinions. From the point of risk dispersing, banks usually built a risk-sharing mechanism between the firm and the banks, while financial markets are risk-dispersing, thus when there are great uncertainties of the technological innovation, financial markets would be more effective but banks would save costs when the technological innovation activities have less uncertainties. In the process of corporate governance, banks have advantage of scale of economy in delegated monitoring andrefrain from moral hazard through long-term implicit contracts, comparatively, corporate governance process of financial markets are quite different.On the industry level, market-based and bank-based financial structures also have different effects of the technological innovations. Technological innovation of industry could be divided into improvements of industry structure and establishment of new technological paradigm. In the first process, bank-based financial structures are more effective, but in the latter case, market-based financial structures have more advantages, thus in the countries with market-based financial structures (United States and UK, for instance), new industries face less barriers of establishment. In reverse, technological innovations of information process, storage and transmission greatly contribute to development of financial structures through financial innovation and would limit the direction of financial system evolution, such as electronic transfer and businesses through network.On the macroeconomic level, we take the view of dynamic and evolutionary on the vertical evolution of financial structures. Similar to the industry level analysis, market-based financial structure is more efficient in the process of establishment of new techno-eco...