Banks' equity stakes in borrowing firms: A corporate finance approach
AbstractIn most countries, banks’ equity holdings in firms that borrow from then are rather small. In light of the theoretical literature, this is somewhat surprising. For example, according to agency cost models, allowing banks to hold equity would seem to alleviate firms’ asset substitution moral hazard problem associated with debt financing. This idea is formalised in John, John, and Saunders in a model where banks are modeled as passive investors and bank loans are the only source of outside finance for firms. In this paper, we argue that this alleged benefit of banks’ equity holding is small or non-existent when banks are modeled explicitly as active monitors and firms have access also to market finance.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by EconWPA in its series Game Theory and Information with number 0404003.
Date of creation: 29 Apr 2004
Date of revision:
Note: Type of Document - pdf
Contact details of provider:
Web page: http://184.108.40.206
banks’ equity holdings; firms’ capital structure; social welfare;
Find related papers by JEL classification:
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ACC-2004-05-02 (Accounting & Auditing)
- NEP-ALL-2004-05-02 (All new papers)
- NEP-CFN-2004-05-02 (Corporate Finance)
- NEP-FIN-2004-05-02 (Finance)
- NEP-MFD-2004-05-02 (Microfinance)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- George W. Evans & Seppo Honkapohja, 2003.
"Friedman's Money Supply Rule vs. Optimal Interest Rate Policy,"
Scottish Journal of Political Economy,
Scottish Economic Society, vol. 50(5), pages 550-566, November.
- Evans, George W. & Honkapohja, Seppo, 2003. "Friedman's money supply rule vs optimal interest rate policy," Research Discussion Papers 10/2003, Bank of Finland.
- George W. Evans & Seppo Honkapohja, 2004. "Friedman’s money supply rule vs optimal interest rate policy," Macroeconomics 0405002, EconWPA.
- Tuomas Takalo & Otto Toivanen, 2004.
"Equilibrium in financial markets with adverse selection,"
- Takalo, Tuomas & Toivanen, Otto, 2003. "Equilibrium in financial markets with adverse selection," Research Discussion Papers 6/2003, Bank of Finland.
- Samu Peura & Esa Jokivuolle, 2004. "Simulation-based stress testing of banks’ regulatory capital adequacy," Finance 0405003, EconWPA.
- Hasan, Iftekhar & Schmiedel , Heiko, 2003.
"Do networks in the stock exchange industry pay off? European evidence,"
Research Discussion Papers
2/2003, Bank of Finland.
- Iftekhar Hasan & Heiko Schmiedel, 2004. "Do networks in the stock exchange industry pay off? European evidence," International Finance 0405002, EconWPA.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (EconWPA).
If references are entirely missing, you can add them using this form.