Zysman

Term Paper Title	Zysman
# of Words	1073
# of Pages (250 words per page double spaced)	4.29

Zysman

                        Zysman (1983) has identified three types of financial systems, these include

1)      A capital-market based system in which resources are allocated in competitive markets based on prices

2)      A credit-based system in which critical prices are administered by government

3)      A credit-based system under the dominion of financial institutions

Within a capital-market based system such as the USA and the UK, organisations access capital in many ways depending on costs and terms. Stock markets are highly developed and specialised financial institutions compete for capital and assets through market-based transactions. For example in the UK �in the early 1980s, shares quoted on the stock market represented over 4,000 companies whereas the equivalent figure for Germany was only 500 companies.� The role of the state is mainly regulatory. Financial institutions do not usually influence firms internally, and relationships between banks and firms are described as short term orientated. Borrower and lender often meet across competitive markets with the help of intermediary institutions.

In Zysman�s classification of the three types of financial system he characterises two types of credit-based systems. However they are distinguished by the different roles that the state plays in each.

            Within a credit-based governmental system such as France and Japan the state becomes an active player with different levels of intervention. On the other hand for example, in Germany which has a credit-based system and centred on the universal private banks is dominated by a limited number of financial institutions, independent of government intervention. In both of these cases capital markets are not as strong. In the latter type the majority of investment credit is provided by banks, which in some cases actually own amounts of their client firm�s shares. This encourages risk-sharing amongst banks and organisations, and    usually provides companies with a more long-term business strategy.

Depending on the particular financial structure a country has they will cope with international financial developments and pressures in different ways. For example some levels of government intervention will be common to all countries. They can influence firms through the financial system. The three distinct financial system structures decide if the financial institutions have control on the companies through the processes of exit, entrance or voice.

The term influence through exit means that if a company doesn�t agree with a price or service the company may choose to leave and is taken elsewhere.

On the other hand influence through voice means although again you may not agree with the service or price on offer, you still stay as a customer but in this case exert pressure on management for reform.

Entrance to and exit from the financial market for a capital-market based system such as the UK or USA is a relatively easy process. The constant flow of firms entering and exiting in turn affects the price of financial assets by shifting the price up or down and so making it more or less attractive to potential buyers.

However due to the structural differences of a credit-based system it is more difficult for financial institutions to exit and so due to this they have a duty to stay loyal to customers. However despite this, the financial institution within this more r...

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