Financial innovation, optimal financing structure, an Austrian perspective

Jason Lermyte ()
Additional contact information
Jason Lermyte: Universite Paris IX Dauphine

The Review of Austrian Economics, 2025, vol. 38, issue 2, No 2, 148 pages

Abstract: Abstract A substantial number of studies, reports, and policies—often advocated by financial regulators or think tanks—state that long-term investments in the equity market are underweighted compared to investments in the fixed income market, and that portfolio reallocation towards riskier assets would benefit both investors and firms. Can an optimal financial structure be determined ex-ante at the macroeconomic level? How could financial innovations and the engineering of structured products contribute to the welfare of the economy? While mainstream financial theories provide some (but incomplete) elements of answers, the Austrian school of economics has not yet developed a comprehensive financial theoretical framework to approach these types of questions. This article has three main objectives: firstly, it provides the basis for the development of an authentic Austrian financial theoretical framework, inherited from Austrian capital theory. Secondly, it uses this framework to analyse the economic benefits of financial innovations. Finally, it studies whether there is any theoretical justification and/or empirical evidence to implement public policies to channel saving from fixed income to equity. The approach followed in this article shares some conclusions with mainstream financial theories, but also some key differences. One of the originalities of this article from an Austrian perspective is to integrate an empirical test into the analysis, in the form of a cross-sectional study. This approach may allow mainstream and Austrian economists to mutually enrich and reconcile their theories and methods, in order to reach some consensus concerning different policies and recommendations.

Keywords: Production structure; Financial structure; Modigliani miller theorem; Financial innovation; Efficient portfolio (search for similar items in EconPapers)
JEL-codes: D14 D24 D81 G32 O16 (search for similar items in EconPapers)
Date: 2025
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.com/10.1007/s11138-023-00634-y Abstract (text/html)
Access to full text is restricted to subscribers.

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:kap:revaec:v:38:y:2025:i:2:d:10.1007_s11138-023-00634-y

Ordering information: This journal article can be ordered from
http://www.springer. ... ce/journal/11138/PS2

DOI: 10.1007/s11138-023-00634-y

Access Statistics for this article

The Review of Austrian Economics is currently edited by Peter Boettke and Christopher Coyne

More articles in The Review of Austrian Economics from Springer, Society for the Development of Austrian Economics Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().