AN EXPLANATION FOR THE DIVERSITY OF FINANCIAL STRUCTURE

Niloy Bose and Rebecca Neumann

Macroeconomic Dynamics, 2015, vol. 19, issue 2, 270-287

Abstract: This paper seeks to provide a theoretical explanation for the weak association between measures of financial structure—as defined by the mixture of bank-based and market-based financial systems in an economy—and economic development. Lenders fund risky investment projects of firms by drawing up loan contracts in the presence of an informational asymmetry. An optimal contract entails the issue of debt, equity, or a mix of the two. The equilibrium choice of contract and the financial structure depend on the state of the economy, which in turn depends on the contracting regime. Based on this analysis, the paper provides a theory that can explain the wide diversity of financial structure among middle-income countries.

Date: 2015
References: Add references at CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://www.cambridge.org/core/product/identifier/ ... type/journal_article link to article abstract page (text/html)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cup:macdyn:v:19:y:2015:i:02:p:270-287_00

Access Statistics for this article

More articles in Macroeconomic Dynamics from Cambridge University Press Cambridge University Press, UPH, Shaftesbury Road, Cambridge CB2 8BS UK.
Bibliographic data for series maintained by Kirk Stebbing ().