货币金融学7版本英文课程--8-大学课程20.pptVIP

Chapter 8 An Economic Analysis of Financial Structure Sources of External Finance in Canada Sources of Foreign External Finance Puzzles of Financial Structure 1. Stocks are not most important source of external finance for businesses 2. Issuing marketable securities not primary funding source for businesses 3. Indirect finance (financial intermediation) is far more important than direct finance 4. Banks are most important source of external finance 5. Financial system is among most heavily regulated sectors of economy 6. Only large, well established firms have access to securities markets 7. Collateral is prevalent feature of debt contracts 8. Debt contracts are typically extremely complicated legal documents with restrictive covenants Transaction Costs and Financial Structure Transaction costs hinder flow of funds to people with productive investment opportunities Financial intermediaries make profits by reducing transaction costs 1. Take advantage of economies of scale Example: Mutual Funds 2. Develop expertise to lower transaction costs Explains Puzzle 3 Adverse Selection and Moral Hazard: Definitions Adverse Selection: 1. Before transaction occurs 2. Potential borrowers most likely to produce adverse outcomes are ones most likely to seek loans and be selected Moral Hazard: 1. After transaction occurs 2. Hazard that borrower has incentives to engage in undesirable (immoral) activities making it more likely that won’t pay loan back Adverse Selection and Financial Structure Lemons Problem in Securities Markets 1. If can’t distinguish between good and bad securities, willing to pay only average of good and bad securities’ values. 2. Result: Good securities undervalued and firms won’t issue them; bad securities overvalued, so too many issued. 3. Investors won’t want to buy bad securities, so market won’t function well. Explains Puzzle 2 and Puzzle 1. Also explains Puzzle 6: Less asymmetric information for well known firms, so smaller lemons problem Tools to He