Bank's capital structure under non-diversifiable risk

Masaya Sakuragawa ()
Additional contact information
Masaya Sakuragawa: Department of Economics, Nagoya City University, Yamanohata-1, Mizuho-cho, Mizuho-ku, Nagoya 467-8501, JAPAN

Economic Theory, 2002, vol. 20, issue 1, 29-45

Abstract: The aim of this paper is to study the design of optimal capital structure of a "large" intermediary when the intermediary faces a non-diversifiable risk, within the standard costly-state-verification (CSV) model. I demonstrate that, under weaker conditions, a "large" intermediary realizes more efficient allocation by issuing both debt and equity than by issuing only debt. Unlike Diamond (1984) and Williamson (1986), the set of optimal contracts involves ex ante monitoring made by shareholders of the intermediary. Changes in parameters, such as the variance of the aggregate risk or the cost of monitoring, affect bankruptcy costs and the capital structure.

Keywords: Financial intermediation; Asymmetric information; Capital structure. (search for similar items in EconPapers)
JEL-codes: G21 G28 (search for similar items in EconPapers)
Date: 2002-02-20
Note: Received: October 12, 1998; revised version: March 20, 2001
References: Add references at CitEc
Citations:

Downloads: (external link)
http://link.springer.de/link/service/journals/00199/papers/2020001/20200029.pdf (application/pdf)
Access to the full text of the articles in this series is restricted

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:spr:joecth:v:20:y:2002:i:1:p:29-45

Ordering information: This journal article can be ordered from
http://www.springer. ... eory/journal/199/PS2

Access Statistics for this article

Economic Theory is currently edited by Nichoals Yanneils

More articles in Economic Theory from Springer, Society for the Advancement of Economic Theory (SAET) Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().