IDEAS home Printed from https://ideas.repec.org/a/bla/ausecp/v58y2019i2p207-231.html
   My bibliography  Save this article

Collateral, labour monitoring and banking accelerator

Author

Listed:
  • Hongru Zhang

Abstract

This paper derives the determination of external finance premium (EFP) in the context of banking sector profit maximisation behaviour. EFP/credit spread stems from the managerial cost, associated with the intermediation process, of factor payments to collateral and labour services. The stake of entrepreneurs is relevant to determine the EFP on two grounds: (a) the ratio of entrepreneurial net wealth to collateral value influences the total managerial cost; and (b) entrepreneurs' net worth (fraction of total collateral) helps mitigate the EFP from extracting rebate from collateral service. Based on these, we can derive an observationally similar relationship between EFP and entrepreneurial leverage, as in previous studies. This provides a rationale for us to understand the financial friction from a novel perspective. Besides the leverage ratio, the EFP is shown to be determined also by the resource cost of financial intermediation, for which the model generates a mechanism that contains broader ingredients in determining the behaviour of EFP.

Suggested Citation

  • Hongru Zhang, 2019. "Collateral, labour monitoring and banking accelerator," Australian Economic Papers, Wiley Blackwell, vol. 58(2), pages 207-231, June.
    • Handle: RePEc:bla:ausecp:v:58:y:2019:i:2:p:207-231
    DOI: 10.1111/1467-8454.12150
    as

    Download full text from publisher

    File URL: https://doi.org/10.1111/1467-8454.12150
    Download Restriction: no
    File URL: https://libkey.io/10.1111/1467-8454.12150?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:ausecp:v:58:y:2019:i:2:p:207-231. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0004-900X .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.