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Type | Working Paper |
Scope | Discipline-based scholarship |
Title | Direct versus Intermediated Finance: An Old Question and a New Answer |
Organization Unit | |
Authors |
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Language |
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Institution | University of Zurich |
Series Name | Working paper series / Institute for Empirical Research in Economics |
Number | No. 87 |
ISSN | 1424-0459 |
Date | 2006 |
Abstract Text | We consider a closed economy where a risk neutral bank competes with a competitive bond market. Firms can finance a risky project either by a bank credit or by issuing a bond which is directly sold to risk averse investors who also hold safe deposits at the bank. We show that the bank tends to allocate more capital to lower quality projects but there are some interesting qualifications. If the asymmetric information concerns only the success probability, then we observe adverse selection while if it concerns only the expected return, bad types are driven out of the market. |
Official URL | http://www.econ.uzh.ch/wp.html |
PDF File | Download from ZORA |
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