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Bank Finance versus Bond Finance
Author(s) -
DE FIORE FIORELLA,
UHLIG HARALD
Publication year - 2011
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2011.00429.x
Subject(s) - corporate bond , corporate finance , bond , finance , business , flexibility (engineering) , agency (philosophy) , agency cost , financial system , public finance , structured finance , bond market , credit risk , economics , corporate governance , financial crisis , philosophy , management , macroeconomics , epistemology , shareholder
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. We document some major long‐run differences in corporate finance between the United States and the euro area, and show that our model can explain those differences based on information availability. The model fits the data best when the euro area is characterized by lower availability of public information about corporate credit risk relative to the United States, and when European firms value more than United States firms banks’ flexibility and information acquisition role.