The Financing and Governance of New Technologies

This paper was presented at the conference on Designing Financial Systems in East Asia and Japan: Toward a Twenty-First Century Paradigm. This two-day conference was co-organized by the International Monetary Fund and the CEI. It was held during September 24-25, 2001 at Hitotsubashi Memorial Hall in Tokyo, Japan. A select group of academics, researchers and policy makers from around the world gathered to examine the timely issue of how the financial systems and corporate governance in East Asia and Japan should be redesigned in order to achieve sustainable economic development. The conference included six sessions with 17 papers. All the presented papers were added to the CEI series of working papers. The series, as well as the contents of the conference, can be reached at http://cei.ier.hit-u.ac.jp.Preliminary draft: 4 September 2001This paper examines the financial sector preconditions for the successful development of high technology sectors. It argues that there is a close relation between types of activities undertaken in different countries and their institutional structures. A distinguishing characteristic of the financing of new technology firms is their evolving pattern of control by different investor groups. While stock markets are an important component of the development of the most successful firms, they are not the most common. Regulation is a significant influence on institutional structure. For the most part, Europe has opted for high levels of investor protection and low levels of diversity, while the U.S. has placed more emphasis on entry and competition in the financial sector. While most attention to date has focused on the regulation and fragility of banking systems in Japan and the Far East, careful consideration needs to be given to alternative forms of regulating other parts of the financial system as well.24 p