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The Economic Capital Of Opaque Financial Institutions

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Author Info
Fernando MIERZEJEWSKI

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Abstract

The capital structure of firms that cannot hedge continuously is affected by the agency costs and the moral-hazard implicit in the contracts they establish with stockholders and customers. It is demonstrated in this paper that then an optimal level of capital exists, which is characterised in terms of the actuarial prices of the involved agreements. The capital principle so obtained extends the classic theoretical framework, sustained by the well-known proposition of Modigliani and Miller and the model of deposit insurance of Robert Merton, at the time that naturally integrates the financial and actuarial theoretical settings.

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Publisher Info
Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 3 (2008)
Issue (Month): 3(5)_Fall2008 ()
Pages: 232-245
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Handle: RePEc:ush:jaessh:v:3:y:2008:i:3(5)_fall2008:p:232-245

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Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14
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Related research
Keywords: capital structure; economic capital; risk capital; deposit insurance; Value-at-Risk;

Other versions of this item:

Find related papers by JEL classification:
G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
G30 - Financial Economics - - Corporate Finance and Governance - - - General
G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Investment Policy
O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment

Cited by:
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  1. Mierzejewski, Fernando, 2008. "The optimal liquidity principle with restricted borrowing," MPRA Paper 12549, University Library of Munich, Germany. [Downloadable!]
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This page was last updated on 2009-12-16.

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