Financial Systems and Corporate Credit Arrangements

Abstract

Ongoing differences between financial systems across countries may explain why financial reporting systems have not yet fully converged. This chapter begins with a discussion of the traditional types of financial system in the six sample countries, Canada, France, Germany, Japan, the UK and the US. Evidence for persisting differences between the six countries’ financial systems will be presented by comparing country-specific data; in particular, we compare the importance of capital markets as against debt capital and the role of deposit money banks. Based on this analysis, we discuss the accounting system as a subsystem of the financial system and the consequences for accounting regulation. Three main arguments for the continuing divergence between accounting regimes will be discussed: first, the different demands of equity investors and lenders in general; second, different interests of shortterm and long-term investors; and third, the different affiliation between debt holders and lending entities, respectively.