Premium
Corporate Financial Policy and the Theory of Financial Intermediation
Author(s) -
SEWARD JAMES K.
Publication year - 1990
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1990.tb03694.x
Subject(s) - financial intermediary , moral hazard , complementarity (molecular biology) , indirect finance , financial market , finance , financial system , capital market , business , financial ratio , economics , financial analysis , financial modeling , financial regulation , financial econometrics , market economy , incentive , biology , genetics
This paper examines the optimal structure of financial contracts in an economy subject to two forms of moral hazard. Multiple information problems are shown to generate a role for multiple classes of financial claimants. We then show that economic efficiency is enhanced if the financial structure of the economy consists of both direct and intermediated financial contract markets. Consequently, our results demonstrate a motivation for the complementarity between capital markets and depository financial institutions.