Trust in Financial Markets


  • This paper is the Keynote Address that I gave at the European Financial Management (EFM) Symposium on Corporate Governance and Shareholder Activism in Bocconi University, Milan, Italy in May 2007. It draws on work that I have done with Marco Becht, Julian Franks, Hideaki Miyajima, Stefano Rossi and Hannes Wagner on contemporaneous and historical aspects of corporate ownership and financial markets in Germany, Japan and the UK. I am grateful to Marco Becht, John Doukas, Stefano Rossi and Hannes Wagner for helpful comments on a previous version of this paper.


This paper examines contemporaneous and historical evidence on the structure of ownership and control of corporate sectors in developed countries to draw lessons for development of financial markets. It records the critical role that equity markets played in the ownership and financing of corporations at the beginning of the 20th century. It notes that this occurred in the absence of formal systems of regulation and that equity markets functioned on the basis of informal relationships of trust. These were sustained through local stock markets in the UK, banks in Germany, and business coordinators and family firms in Japan. The paper explores the concept of trust that is required to promote the development of financial markets.