ABSTRACT
This chapter is relevant to the text content as studies have indicated that there are two systems of finance that facilitate economic growth: bank based and free market based financial systems. I mentioned in the conclusion to Chapter 5 that corporate governance should apply to all sectors of society and this ensures that there is little corruption, proper accountability and strong rule of law, which helps in the efficient allocation of resources. A bank based financial system is one where most of the new investment capital is provided by banks (as in France, Germany and Japan) and a free market based financial system is one where the capital and stock markets are well developed and hence most of the new financing and investments come from the stock markets (United States and UK). China has relatively underdeveloped stock markets and hence most of its corporate financing comes from the banking system. And that is why corporate governance in the banking system is important. It must be mentioned, however, that funds raised through the stock markets via IPOs (initial public offerings) are becoming increasingly common and popular.
