International Relations, Politics and International Relations, School of Social and Political Science, University of Edinburgh, 4.23 Chrystal Macmillan Building, 15a George Square, Edinburgh UK EH8 9LD
In comparative political economy (CPE), ‘patient capital’ (‘PC’)—primarily from relational banks—is central to distinguishing national economies. The rise of ‘market-based banking’ highlights the growing inability of commercial banks to be patient. This raises the question of whether alternative forms of PC exist, but CPE lacks a framework to consider PC provision by financial markets. We develop our concept of PC and a framework for determining the investors most likely to provide it—and under which conditions. We define PC as equity or debt whose providers aim to capture benefits specific to long-term investments and who maintain their investment even in the face of adverse short-term conditions for the firm. We argue for determining patience though three questions: (a) Is the investment (loan) intended to be short or long term? (b) Is the investor engaged with management in pursuit of short-term share price performance or creditworthiness? and (c) What is the likelihood of exit because of concerns regarding short-term performance? Our framework lays the cornerstones for a new comparative theory of financial systems.