Introduction

The analysis of the aggregate financing of investment by non-financial enterprises in chapter 3 provided no evidence that bank loans constitute a larger proportion of the finance of investment by such enterprises in Germany than in the UK: if anything, the evidence suggested that bank loans were a smaller proportion. This evidence raises serious doubts about one of the major components of the widely-held view of the merits of the German system of investment finance: the claim that the close involvement of German banks with the firms to which they supply funds enables them to deal more effectively with asymmetric information problems and provide a larger proportion of debt finance to firms on favourable terms. But there are several reasons why this evidence is not sufficient on its own to reject the claim that investment funds are supplied more efficiently in Germany because the banks are able to overcome the problems created by information asymmetries between savers and investors.

One such reason is that international comparisons of financing have to be made with great care because of problems with the coverage and reliability of data from different countries, and it would therefore be foolish to use these comparisons on their own as a basis for rejecting a major component of the widely-held view. A second reason is the fact that, because investment by non-financial enterprises has been a higher proportion of GDP in Germany than in the UK, bank loans have been a higher proportion of GDP in Germany than in the UK despite having been no larger as a proportion of investment by non-financial enterprises. This observation is consistent with the following possibility.