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The Choice of Financing: a Theoretical Model

Author

Listed:
  • Cláudio R. Lucinda

    (Escola de Economia de São Paulo, Escola de Administração de Empresas de São Paulo, Fundação Getulio Vargas)

  • Richard Saito

    (Escola de Administração de Empresas de São Paulo, Fundação Getulio Vargas)

Abstract

This paper aims to understand under which circumstances the employment of the services of a financial intermediary is preferred to the decentralized capital market, as well as to provide some reasons why these types of financing coexist. In order to do that, it will be developed a model in which the free-rider effects lead to profit opportunities for an intermediary when asymmetric information between lenders and borrowers is present. The analysis is extended to a multi-period setting, where the focus is ascertain if, under repeated interaction between the agents, the availability of information on payment history of a borrower alters the previous results.

Suggested Citation

  • Cláudio R. Lucinda & Richard Saito, 2009. "The Choice of Financing: a Theoretical Model," Brazilian Review of Finance, Brazilian Society of Finance, vol. 7(1), pages 51-71.
    • Handle: RePEc:brf:journl:v:7:y:2009:i:1:p:51-71
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    More about this item

    Keywords

    debt; financing choices.;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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