This paper investigates the relationship between banking and growth in the presence of an inefficient judicial system. With regards to banks, the legal framework is particularly important. For example, in case of borrower's default the bank often has the right to seize collateral. However, in practice the enforcement of this right depends on the efficiency of the judicial system. A number of empirical studies (Stulz, 2001; Levine, 1998 and Beck et al., 2001) have shown that the legal framework is crucial for the development of a financial system. Figure 1 shows two financial depth indicators (Private Credit/GDP and Liquid liability/GDP) in the period 2000-04 versus the judicial efficiency (JE) for 76 countries divided in quartiles according to their "level" of judicial efficiency. It is clear that the two indicators of financial development increase with the judicial efficiency. This positive relationship suggests that the emergence of a banking system at the early stage of economic development may be influenced by the level of judicial efficiency.
Whether corporate diversification increases or destroys firm value has been the subject of extensive investigation in the finance literature. Earlier evidence generally shows that diversified firms sell at a discount relative to focused firms and suggests that diversification destroys share value (e.g., Lang and Stulz, 1994; Berger and Ofek, 1995). Recent studies have argued, however, that diversification per se does not cause a discount (e.g., Graham et al. (1999); Lamont and Polk (1999); Villalonga (2004); Campa and Kedia (2001)). Using a plant-level database that covers the entire U.S. economy, Villalonga (2005) even finds that diversified firms are traded at significant premia compared to focused firms in the same industry.
A corporation embeds the claims of various stakeholders including shareholders, managers, and creditors and each group may attach a different value to diversification. For example, managers may value diversification because it allows them to have greater discretion on the firm’s cash flows by creating an internal capital market, and because it reduces the potential risk in managerial compensation linked to the firm’s overall performance. Or, diversification may be of value for equity-holders if they are able to diversify their own individual investment portfolios only at higher cost. While substantial evidence has accumulated on the effect of corporate diversification on equity holders and on managerial behavior, little is known about creditors’ assessment of the merits of corporate diversification.
When you ordered your BMW, you chose various items of equipment. This Owner's Manual describes all models and equipment that BMW offers within the same group. We hope you will understand that equipment and features are included which you might not have chosen for your vehicle. Any differences can easily be identified since all optional accessories and special equipment are marked with an asterisk *. If equipment in your BMW Z4 M Roadster/Z4 M Coupe is not described in this Supplementary Owner's Manual, please refer to the Owner's Manual for the BMW Z4.
