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A Theory of Corporate Capital Structure and Investment

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  • Miguel Cantillo

Abstract

This article uses a general equilibrium framework to explore the origins and limitations of financial intermediaries. In the model, investors have a generic lending technology that they can improve at a cost. Those who upgrade become intermediaries to exploit their advantage. However, conflicts with depositors will limit the banks' market presence, and they will only lend to moderately endowed firms while bondholders will finance cash-rich corporations. The article also analyzes the extent to which investors adopt the superior lending technique, the nature of bank competition, and how corporate and bank conditions affect interest rates and investment. Copyright 2004, Oxford University Press.

Suggested Citation

  • Miguel Cantillo, 2004. "A Theory of Corporate Capital Structure and Investment," The Review of Financial Studies, Society for Financial Studies, vol. 17(4), pages 1103-1128.
    • Handle: RePEc:oup:rfinst:v:17:y:2004:i:4:p:1103-1128
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    File URL: http://hdl.handle.net/10.1093/rfs/hhg045
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    Cited by:

    1. Cantillo, Miguel & Wright, Julian, 2000. "How Do Firms Choose Their Lenders? An Empirical Investigation," The Review of Financial Studies, Society for Financial Studies, vol. 13(1), pages 155-189.
    2. Sunirand, Pojanart, 2002. "The role of bank capital and the transmission mechanism of monetary policy," LSE Research Online Documents on Economics 24953, London School of Economics and Political Science, LSE Library.
    3. S. Viswanathan & Adriano A. Rampini, 2008. "Collateral, Financial Intermediation, and the Distribution of Debt Capacity," 2008 Meeting Papers 116, Society for Economic Dynamics.
    4. Peter Brusov & Tatiana Filatova & Mukhadin Eskindarov & Pavel Brusov & Natali Orehova & Anastasia Brusova, 2012. "Influence of debt financing on the effectiveness of the finite duration investment project," Applied Financial Economics, Taylor & Francis Journals, vol. 22(13), pages 1043-1052, July.
    5. Pojanart Sunirand, 2002. "The Role of Bank Capital and The Transmission Mechanism of Monetary Policy," FMG Discussion Papers dp433, Financial Markets Group.
    6. George Emmanuel Iatridis, 2012. "Voluntary IFRS disclosures: evidence from the transition from UK GAAP to IFRSs," Managerial Auditing Journal, Emerald Group Publishing, vol. 27(6), pages 573-597, June.

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