Some Thoughts on the External Finance Premium and the Cost of Internal Finance

Sophocles Brissimis, Michalis-Panayiotis Papafilis and Thomas Vlassopoulos

MPRA Paper from University Library of Munich, Germany

Abstract: We draw a conceptual distinction between the cost and the opportunity cost of internal finance, the latter being an integral part of the definition of the external finance premium in the literature. We come up with an operational definition of the cost of internal finance and calculate its differential with the cost of external finance. We further delve into the concept of the equilibrium real interest rate and measure it in terms of the cost of internal finance as the rate that would prevail in the long run after temporary shocks in the economy have died out.

Keywords: External finance premium; Cost of internal finance; Equilibrium real interest rate (search for similar items in EconPapers)
JEL-codes: E44 E52 G32 (search for similar items in EconPapers)
Date: 2018-02
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:85261

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