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Contribution Details

Type Working Paper
Scope Discipline-based scholarship
Title Direct versus Intermediated Finance: An Old Question and a New Answer
Organization Unit
Authors
  • Anke Gerber
Language
  • English
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.
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