OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

International Integration of Financial Markets and the Cost of Capital

Despite the increased capital mobility that has accompanied the trend towards liberalisation and international integration of financial markets, differences remain in financing costs and, in particular, the cost of capital, that similar businesses face in different countries. These differences have attracted considerable attention as important factors influencing international investment and productivity growth. A number of reviewed empirical studies suggest that Japan and Germany enjoyed a considerable advantage with regard to the cost of equity and, more broadly, the cost of capital compared to the United States and the United Kingdom in the 1980s. This was due to higher leverage, a much lower cost of equity in Japan and a lower cost of German firms' debt to banks. Many studies have argued that closer bank-customer relationships, and more stable prices and growth rates in Japan and Germany have tended to lower their cost of capital. More recent studies which cover the period ...


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