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Corporate Financial Policy and the Theory of Financial Intermediation

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  • Seward, James K

Abstract

This paper examines the optimal structure of financial contracts in an economy subject to two forms of moral hazard. Multiple information problems are shown to generate a role for multiple classes of financial claimants. The author then shows that economic efficiency is enhanced if the financial structure of the economy consists of both direct and intermediated financial contract markets. Consequently, his results demonstrate a motivation for the complementarity between capital markets and depository financial institutions. Copyright 1990 by American Finance Association.

Suggested Citation

  • Seward, James K, 1990. "Corporate Financial Policy and the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 45(2), pages 351-377, June.
    • Handle: RePEc:bla:jfinan:v:45:y:1990:i:2:p:351-77
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    Citations

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    Cited by:

    1. Demirguc-Kunt, Asli, 1992. "Developing country capital structures and emerging stock markets," Policy Research Working Paper Series 933, The World Bank.
    2. Henke, Sabine & Burghof, Hans-Peter & Rudolph, Bernd, 1998. "Credit securitization and credit derivatives: Financial instruments and the credit risk management of middle market commercial loan portfolios," CFS Working Paper Series 1998/07, Center for Financial Studies (CFS).
    3. Andersen, Thomas Barnebeck & Malchow-Moller, Nikolaj, 2006. "Strategic interaction in undeveloped credit markets," Journal of Development Economics, Elsevier, vol. 80(2), pages 275-298, August.
    4. Hooks, Linda M., 2003. "The impact of firm size on bank debt use," Review of Financial Economics, Elsevier, vol. 12(2), pages 173-189.
    5. Ross Levine, 1990. "Financial structure and economic development," International Finance Discussion Papers 381, Board of Governors of the Federal Reserve System (U.S.).
    6. Jean-Daniel Guigou & Laurent Vilanova, 1999. "Les vertus du financement bancaire: fondements et limites," Revue Finance Contrôle Stratégie, revues.org, vol. 2(2), pages 97-133, June.
    7. Mr. Biaggio Bossone & Mr. Sandeep Mahajan & Mr. Farah Zahir, 2003. "Financial Infrastructure, Group Interests, and Capital Accumulation: Theory, Evidence, and Policy," IMF Working Papers 2003/024, International Monetary Fund.
    8. Sami Bacha, 2014. "Does Hedging Financing Ensure Shareholder Value: The Case of Investment Decision," International Journal of Empirical Finance, Research Academy of Social Sciences, vol. 3(5), pages 225-233.
    9. Randall Wright & Yuet‐Yee Wong, 2014. "Buyers, Sellers, And Middlemen: Variations On Search‐Theoretic Themes," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(2), pages 375-397, May.
    10. Gangopadhyay, Shubhashis & Mukhopadhyay, Bappaditya, 2002. "Multiple bank lending and seniority in claims," Journal of Economics and Business, Elsevier, vol. 54(1), pages 7-30.
    11. João A. C. Santos, 2000. "Bank capital regulation in contemporary banking theory: a review of the literature," BIS Working Papers 90, Bank for International Settlements.
    12. Linda M. Hooks, 2003. "The impact of firm size on bank debt use," Review of Financial Economics, John Wiley & Sons, vol. 12(2), pages 173-189.
    13. Stanton, Sonya Williams, 1998. "The Underinvestment Problem and Patterns in Bank Lending," Journal of Financial Intermediation, Elsevier, vol. 7(3), pages 293-326, July.
    14. Al-Jarhi, Mabid, 2000. "السياسات النقدية في إطار إسلامي [Monetary Policy in an Islamic Framework]," MPRA Paper 67547, University Library of Munich, Germany, revised 2002.
    15. Searcy, DeWayne L. & Ward, Terry J. & Woodroof, Jon B., 2009. "Continuous reporting benefits in the private debt capital market," International Journal of Accounting Information Systems, Elsevier, vol. 10(3), pages 137-151.
    16. Boyd, John H. & Smith, Bruce D., 1999. "The Use of Debt and Equity in Optimal Financial Contracts," Journal of Financial Intermediation, Elsevier, vol. 8(4), pages 270-316, October.
    17. Robert O. Edmister & Gay B. Hatfield, 1995. "The Significance of Porfolio Lenders to Real Estate Brokers," Journal of Real Estate Research, American Real Estate Society, vol. 10(1), pages 57-68.
    18. João A. C. Santos, 1998. "Banking and commerce: how does the United States compare to other countries?," Economic Review, Federal Reserve Bank of Cleveland, vol. 34(Q IV), pages 14-26.
    19. Gwatidzo, Tendai & Ojah, Kalu, 2014. "Firms’ debt choice in Africa: Are institutional infrastructure and non-traditional determinants important?," International Review of Financial Analysis, Elsevier, vol. 31(C), pages 152-166.

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