Financial Sector, Regulation and Corporate Performance: The Case of Spain (download PDF 224 Kb)

Santiago Carbó

Abstract
With the advent of the EMU and the widespread financial integration many efforts have been undertaken by European financial authorities. In the case of Spain, there are many regulatory and institutional factors that condition a deeper financial integration. This paper analyzes the relationships between corporate performance and the financial sector. The aim of the paper is twofold. Firstly, it seeks to overview the main characteristics of regulation and financial structure in Spain. On one hand, the dynamic role played by the Bank of Spain in supervising banks and the implications of a recent Financial Act (Ley Financiera) are underlined. On the other hand, regarding financial markets issues, we examine the importance of the National Financial Markets Commission (CNMV) as well as the medium-term effects of the Financial Markets Reform Act of 1998. Secondly, the paper offer a synthesis of the main indicators illustrating the relationships between financial markets and corporate performance, which is markedly influenced by the bank-based profile of the Spanish financial system and the universal nature of bank business. Financial deepening is also presented as one of the main facts explaining corporate financing, with an enormous development of assets such as mutual funds, a trend that has been partially instigated by a non-neutral income tax policy. Besides, some other indicators that reflect the state and the structure of corporate finance are computed and presented including market capitalization issues, lending and other pricing spreads or the cost of the use of financial capital. The paper ends with an empirical analysis of the impact of bank deepening and bank dependence on economic growth in Spain