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A Theory of Banks, Bonds, and the Distribution of Firm Size

  • Diego Valderrama
  • Katheryn N. Russ

We draw on stylized facts from the finance literature to build a model where altering the relative costs of bank and bond financing changes the entire distribution of firm size, with implications for the aggregate capital stock, output, and welfare. When reducing transactions costs in one market, the resulting increase in output and welfare are largest when transactions costs in the other market are very high.

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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 915.

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Handle: RePEc:cda:wpaper:09-15
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