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Information, Nonexcludability, and Financial Market Structure

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  • Anand, Bharat N
  • Galetovic, Alexander

Abstract

We study the determinants of market structure in financial intermediation markets when property rights over information are weak. We show that incentives to gather information to screen firms can be preserved in decentralized markets with more than one intermediary. Local monopoly power is sustained by an aggregate oligopolistic market structure, where intermediaries voluntarily refrain from free riding. We find that this market structure is robust to entry and does not change with market size. We apply our theory to two markets--investment banking and venture capital--and use it to organize and interpret the evidence. Copyright 2000 by University of Chicago Press.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Business.

Volume (Year): 73 (2000)
Issue (Month): 3 (July)
Pages: 357-402

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Handle: RePEc:ucp:jnlbus:v:73:y:2000:i:3:p:357-402

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Web page: http://www.journals.uchicago.edu/JB/

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References

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  1. Bharat N. Anand & Alexander Galetovic, 2000. "Weak Property Rights and Holdup in R&D," Journal of Economics & Management Strategy, Wiley Blackwell, Wiley Blackwell, vol. 9(4), pages 615-642, December.
  2. Mitchell A. Petersen & Raghuram G. Rajan, 1994. "The Effect of Credit Market Competition on Lending Relationships," NBER Working Papers 4921, National Bureau of Economic Research, Inc.
  3. Andrei Shleifer & Robert W. Vishny, 1996. "A Survey of Corporate Governance," NBER Working Papers 5554, National Bureau of Economic Research, Inc.
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  6. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, Elsevier, vol. 3(1), pages 2-50, October.
  7. George W. Fenn & Nellie Liang & Stephen Prowse, 1995. "The economics of the private equity market," Staff Studies, Board of Governors of the Federal Reserve System (U.S.) 168, Board of Governors of the Federal Reserve System (U.S.).
  8. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, Oxford University Press, number 9780195102680, October.
  9. Fudenberg, Drew & Maskin, Eric, 1986. "The Folk Theorem in Repeated Games with Discounting or with Incomplete Information," Econometrica, Econometric Society, Econometric Society, vol. 54(3), pages 533-54, May.
  10. Foster, F Douglas, 1989. " Syndicate Size, Spreads, and Market Power during the Introduction of Shelf Registration," Journal of Finance, American Finance Association, American Finance Association, vol. 44(1), pages 195-204, March.
  11. Ramakrishnan, Ram T S & Thakor, Anjan V, 1984. "Information Reliability and a Theory of Financial Intermediation," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 415-32, July.
  12. Rajan, Raghuram G, 1992. " Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt," Journal of Finance, American Finance Association, American Finance Association, vol. 47(4), pages 1367-400, September.
  13. Diamond, Douglas W, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 51(3), pages 393-414, July.
  14. Gompers, Paul A, 1995. " Optimal Investment, Monitoring, and the Staging of Venture Capital," Journal of Finance, American Finance Association, American Finance Association, vol. 50(5), pages 1461-89, December.
  15. Sahlman, William A., 1990. "The structure and governance of venture-capital organizations," Journal of Financial Economics, Elsevier, Elsevier, vol. 27(2), pages 473-521, October.
  16. Sanford J Grossman & Joseph E Stiglitz, 1997. "On the Impossibility of Informationally Efficient Markets," Levine's Working Paper Archive 1908, David K. Levine.
  17. von Thadden, Ernst-Ludwig, 1995. "Long-Term Contracts, Short-Term Investment and Monitoring," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 62(4), pages 557-75, October.
  18. Lerner, Joshua, 1994. "Venture capitalists and the decision to go public," Journal of Financial Economics, Elsevier, Elsevier, vol. 35(3), pages 293-316, June.
  19. Diamond, Douglas W, 1991. "Monitoring and Reputation: The Choice between Bank Loans and Directly Placed Debt," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 99(4), pages 689-721, August.
  20. Thakor, Anjan V, 1996. " Capital Requirements, Monetary Policy, and Aggregate Bank Lending: Theory and Empirical Evidence," Journal of Finance, American Finance Association, American Finance Association, vol. 51(1), pages 279-324, March.
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Citations

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Cited by:
  1. Bharant N. Anand & Alexander Galetovic, 2000. "Relationships, Competition, and the Structure of Investment Banking Markets," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 96, Centro de Economía Aplicada, Universidad de Chile.
  2. Dessi, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," TSE Working Papers, Toulouse School of Economics (TSE) 09-075, Toulouse School of Economics (TSE).
  3. Bharat N. Anand & Alexander Galetovic, 2002. "Investment Banking and Security Market Development: Does Finance Follow Industry?," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 121, Centro de Economía Aplicada, Universidad de Chile.
  4. Alexander Ljungqvist & Felicia Marston & William J. Wilhelm, 2006. "Competing for Securities Underwriting Mandates: Banking Relationships and Analyst Recommendations," Journal of Finance, American Finance Association, American Finance Association, vol. 61(1), pages 301-340, 02.
  5. Bradley, Daniel & Choi, Hyung-Suk & Clarke, Jonathan, 2011. "Working for the enemy? The impact of investment banker job changes on deal flow," Journal of Empirical Finance, Elsevier, Elsevier, vol. 18(4), pages 585-596, September.
  6. Bharat N. Anand & Alexander Galetovic, 2002. "Does Competition Kill Relationships? Inside Investment Banking," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 119, Centro de Economía Aplicada, Universidad de Chile.
  7. Ljungqvist, Alexander P & Wilhelm Jr, William J, 2001. "The Seven Percent Solution? An International Perspective On Underwriting Spreads," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2736, C.E.P.R. Discussion Papers.
  8. Dessi, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," IDEI Working Papers, Institut d'Économie Industrielle (IDEI), Toulouse 465, Institut d'Économie Industrielle (IDEI), Toulouse.
  9. Shivdasani, Anil & Song, Wei-Ling, 2010. "Breaking Down the Barriers: Competition, Syndicate Structure, and Underwriting Incentives," Working Papers, University of Pennsylvania, Wharton School, Weiss Center 10-25, University of Pennsylvania, Wharton School, Weiss Center.
  10. Ljungqvist, Alexander P & Nanda, Vikram & Singh, Rajdeep, 2001. "Hot Markets, Investor Sentiment and IPO Pricing," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3053, C.E.P.R. Discussion Papers.
  11. Dessí, Roberta, 2009. "Contractual Execution, Strategic Incompleteness and Venture Capital," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7413, C.E.P.R. Discussion Papers.
  12. John Asker & Alexander Ljungqvist, 2010. "Competition and the Structure of Vertical Relationships in Capital Markets," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(3), pages 599-647, 06.
  13. repec:ste:nystbu:06-23 is not listed on IDEAS
  14. Trauten, Andreas, 2004. "Zur Effizienz von Wertpapieremissionen über Internetplattformen," Working Papers 8, Competence Center Internet Economy and Hybrid Systems, European Research Center for Information Systems (ERCIS), University of Münster.
  15. Jos� Miguel Benavente & Alexander Galetovic & Ricardo Sanhueza, 2005. "La din�mica industrial y el financiamiento de las pyme," Documentos de Trabajo, Centro de Economía Aplicada, Universidad de Chile 201, Centro de Economía Aplicada, Universidad de Chile.
  16. Shivdasani, Anil & Song, Wei-Ling, 2011. "Breaking down the barriers: Competition, syndicate structure, and underwriting incentives," Journal of Financial Economics, Elsevier, Elsevier, vol. 99(3), pages 581-600, March.
  17. Haukioja, Teemu & Hahl, Jarmo, 2001. "The Emergence of the New Economy, and its Challenge to Financial Intermediation and Banking," Discussion Papers, The Research Institute of the Finnish Economy 772, The Research Institute of the Finnish Economy.

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