Bank Finance Versus Bond Finance

Fiorella De Fiore and Harald Uhlig ()

No 16979, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We present a dynamic general equilibrium model with agency costs where: i) firms are heterogeneous in the risk of default; ii) they can choose to raise finance through bank loans or corporate bonds; and iii) banks are more efficient than the market in resolving informational problems. The model is used to analyze some major long-run differences in corporate finance between the US and the euro area. We suggest an explanation of those differences based on information availability. Our model replicates the data when the euro area is characterized by limited availability of public information about corporate credit risk relative to the US, and when european firms value more than US firms the flexibility and information acquisition role provided by banks.

JEL-codes: C68 E20 E44 (search for similar items in EconPapers)
Date: 2011-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cta, nep-dge and nep-eec
Note: EFG CF ME
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Citations: View citations in EconPapers (109)

Published as Fiorella De Fiore & Harald Uhlig, 2011. "Bank Finance versus Bond Finance," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(7), pages 1399-1421, October.

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Journal Article: Bank Finance versus Bond Finance (2011)
Journal Article: Bank Finance versus Bond Finance (2011)
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