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

  • Diego Valderrama
  • Katheryn N. Russ

    (Department of Economics, University of California Davis)

Does targeted financial development favor small firms or large ones? And how do resulting changes in the distribution of firm size affect aggregate outcomes? We assess the macroeconomic implications of known stylized facts from the finance literature regarding firm size and financial frictions for the real economy. In an era of intense policy debate over the role of market-based finance in the macroeconomy, we find that considering the entire distribution of firm size is key to accurately assess the effects of targeted financial policies on macroeconomic outcomes and firm behavior.

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Paper provided by University of California, Davis, Department of Economics in its series Working Papers with number 916.

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Length: 45
Date of creation: 16 Oct 2009
Date of revision:
Handle: RePEc:cda:wpaper:09-16
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