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 ...