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Financial Intermediaries as Markets for Firm Assets

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  • Luis Araujo
  • Raoul Minetti

Abstract

This article proposes a theory of financial intermediation based on intermediaries' role in the reallocation of assets of distressed firms. The article suggests that intermediaries aggregate information on firms in credit relationships and use this information to facilitate asset reallocation across firms. However, this role of intermediaries hinges on debt contracts that grant lenders the right to foreclose assets of distressed borrowers and, hence, exclude the most productive asset users from the resale market. We characterise conditions under which intermediaries arise and under which their role in the credit market enhances their role as markets for firm assets. Copyright 2007 The Author(s). Journal compilation Royal Economic Society 2007.

Suggested Citation

  • Luis Araujo & Raoul Minetti, 2007. "Financial Intermediaries as Markets for Firm Assets," Economic Journal, Royal Economic Society, vol. 117(523), pages 1380-1402, October.
  • Handle: RePEc:ecj:econjl:v:117:y:2007:i:523:p:1380-1402
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    Cited by:

    1. Alessandro Giovannini & Maurizio Iacopetta & Raoul Minetti, 2013. "Financial Markets, Banks, and Growth : Disentangling the links," Revue de l'OFCE, Presses de Sciences-Po, vol. 0(5), pages 105-147.
    2. Oba Efayena, 2014. "Financial Intermediaries and Economic Growth: The Nigerian Evidence," Acta Universitatis Danubius. OEconomica, Danubius University of Galati, issue 10(3), pages 125-135, June.

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