Bank Finance Versus Bond Finance
AbstractWe present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose among two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firms and the endogenous financial structure of the economy. The calibrated model is used to address questions such as: What explains differences in the financial structure of the US and the euro area? What are the implications of these differences for allocations? We find that a higher share of bank finance in the euro area relative to the US is due to lower availability of public information about firms' credit worthiness and to higher efficiency of banks in acquiring this information. We also quantify the effect of differences in the financial structure on per-capita GDP.
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Bibliographic InfoPaper provided by Becker Friedman Institute for Research In Economics in its series Working Papers with number 2011-004.
Date of creation: Apr 2011
Date of revision:
Financial structure; agency costs; heterogeneity;
Other versions of this item:
- E20 - Macroeconomics and Monetary Economics - - Macroeconomics: Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
- E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-01-03 (All new papers)
- NEP-BAN-2012-01-03 (Banking)
- NEP-CBA-2012-01-03 (Central Banking)
- NEP-DGE-2012-01-03 (Dynamic General Equilibrium)
- NEP-EEC-2012-01-03 (European Economics)
- NEP-MAC-2012-01-03 (Macroeconomics)
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