The Role of a Corporate Bond Market in an Economy -- and in Avoiding Crises
While much attention has been focused on the optimal ratio of a firm's debt to equity, the "optimal" or best balance between bond financing and (longer-term) bank financing has scarcely been addressed. This essay examines the principal differences between an economy with a well-developed corporate bond market free from government interference and an economy in which bank financing plays a central role (as in East Asia). When a full-fledged corporate bond market is present, market forces have a much greater opportunity to assert themselves, thereby reducing systemic risk and the probability of a crisis. This is because such an environment is associated with greater accounting transparency, a large community of financial analysts, respected rating agencies, a wide range of corporate debt securities and derivatives demanding sophisticated credit analysis, and efficient procedures for corporate reorganization and liquidation. In addition, the richness of available securities will tend to enhance economic welfare, and the market forces at work on the wide array of bond prices are likely to have a strong spillover effect on the health of the banking system as well.
|Date of creation:||01 Jun 1999|
|Date of revision:|
|Contact details of provider:|| Postal: F502 Haas, Berkeley CA 94720-1922|
Phone: (510) 642-1922
Fax: (510) 642-5018
Web page: http://www.escholarship.org/repec/iber_finance/
More information through EDIRC
References listed on IDEAS
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.:
- Edward J. Kane, 1998.
"Capital Movements, Asset Values, and Banking Policy in Globalized Markets,"
NBER Working Papers
6633, National Bureau of Economic Research, Inc.
- Edward J. Kane, 1998. "Capital movements, asset values, and banking policy in globalized markets," Proceedings 606, Federal Reserve Bank of Chicago.
- Dennis Emerick & William White, 1992. "The Case For Private Placements: How Sophisticated Investors Add Value To Corporate Debt Issuers," Journal of Applied Corporate Finance, Morgan Stanley, vol. 5(3), pages 83-91.
- Pomerleano, Michael, 1998. "The East Asia crisis and corporate finances : the untold micro story," Policy Research Working Paper Series 1990, The World Bank.
- Hakansson, Nils H, 1982. " Changes in the Financial Market: Welfare and Price Effects and the Basic Theorems of Value Conservation," Journal of Finance, American Finance Association, vol. 37(4), pages 977-1004, September.
When requesting a correction, please mention this item's handle: RePEc:cdl:rpfina:qt6sq4c6g0. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Lisa Schiff)
If references are entirely missing, you can add them using this form.