Bank Finance Versus Bond Finance

40 Pages Posted: 27 Apr 2011

See all articles by Fiorella De Fiore

Fiorella De Fiore

Bank for International Settlements (BIS) - Monetary and Economic Department

Harald Uhlig

University of Chicago - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: April 21, 2011

Abstract

We present a model with agency costs where heterogeneous firms raise finance through either bank loans or corporate bonds, and where banks are more efficient than the market in resolving informational problems. The model is used to analyze some major long-run differences in corporate finance between the US and the euro area. Our explanation of those differences is based on information availability. The model replicates the data when the euro area is characterized by limited availability of public information about corporate credit risk relative to the US, and when European firms value more than US …firms banks' flexibility and information acquisition role.

Keywords: Financial Structure, Agency Costs, Heterogeneity

JEL Classification: E20, E44, C68

Suggested Citation

De Fiore, Fiorella and Uhlig, Harald, Bank Finance Versus Bond Finance (April 21, 2011). MFI Working Paper No. 2011-004. Available at SSRN: https://ssrn.com/abstract=1824613 or http://dx.doi.org/10.2139/ssrn.1824613

Fiorella De Fiore

Bank for International Settlements (BIS) - Monetary and Economic Department ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Harald Uhlig (Contact Author)

University of Chicago - Department of Economics ( email )

1101 East 58th Street
Chicago, IL 60637
United States

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