The impact of alternative bank monitoring policies on corporate investment and financing decisions

William Emmons and James K. Seward

No 2002-09, Supervisory Policy Analysis Working Papers from Federal Reserve Bank of St. Louis

Abstract: Much of the benefit from bank loans is generated by the specialized monitoring and information gathering role provided by financial institutions, including their role in facilitating the reorganization of firms experiencing financial distress. Despite these numerous benefits, it is somewhat surprising that aggregate trends suggest that the corporate sector has decreased its reliance on bank loans. We model the relationship between alternative bank monitoring policies and corporate investment and financing decisions. Rather than taking the monitoring characteristics of the bank as fixed, we examine the effects of changes in bank monitoring policies. We provide insights into how the banking sector evolves through time.

Keywords: Banks and banking; Corporations - Finance (search for similar items in EconPapers)
Date: 2002
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