EconPapers    
Economics at your fingertips  
 

A Theory of Banks, Bonds, and the Distribution of Firm Size

Katheryn Russ () and Diego Valderrama ()

No 15454, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We draw on stylized facts from the finance literature to build a model where altering the relative costs of bank and bond financing changes the entire distribution of firm size, with implications for the aggregate capital stock, output, and welfare. Reducing transactions costs in the bond market increases the output and profits of mid-sized firms at the expense of both the largest and smallest firms. In contrast, reducing the frictions involved in bank lending promotes the expansion of the smallest firms while all other firms shrink, even as it increases the profitability of both small and mid-size firms. Although both policies increase aggregate output and welfare, they have opposite effects on the extensive margin of production---promoting bond issuance causes exit while cheaper bank credit induces entry. When reducing transactions costs in one market, the resulting increase in output and welfare are largest when transactions costs in the other market are very high.

JEL-codes: E10 F4 G32 L11 L16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac
Date: 2009-10
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4) Track citations by RSS feed

Downloads: (external link)
http://www.nber.org/papers/w15454.pdf (application/pdf)

Related works:
Working Paper: A Theory of Banks, Bonds, and the Distribution of Firm Size (2009) Downloads
Working Paper: A theory of banks, bonds, and the distribution of firm size (2009) Downloads
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:nbr:nberwo:15454

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15454

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

 
Page updated 2019-10-11
Handle: RePEc:nbr:nberwo:15454