Financial Contract and Capital Allocation : A Comparison between Market-based Finance and Bank Finance

• MIYAZAWA Shinjiro

Abstract

type:Article

I investigate financial contracting and subsequent capital allocation problems in an incomplete contracting framework and compare the results for two financial schemes: market-based finance and bank finance. At the time of the financial contract, the capital allocation is enforceable when the firm gains financing from banks, but not when gaining financing from market investors because banks have sufficient information and incentive to enforce a capital allocation in contrast to the market investors. The results show that (i) both financial schemes tend to result in under-investment; (ii) market-based finance results in a distorted allocation in favor of liquid assets (or short-term investments), whereas bank finance results in a distorted allocation in favor of illiquid assets (or long-term investments); and (iii) only bank finance eliminates under-investment and distorted allocation as liquidation loss disappears.

Journal

• 経営志林

  経営志林 55 (2), 49-58, 2018-07-31

  法政大学経営学会

Keywords

• Incomplete Contract
• Capital Allocation
• Financial Scheme

Details

• CRID: 1390856351211133184
• NII Article ID: 40021709127
• NII Book ID: AN00069139
• ISSN: 02870975
• DOI: 10.15002/00025598
• NDL BIB ID: 029315380
• Web Site: http://hdl.handle.net/10114/00025598
• Web Site: https://ndlsearch.ndl.go.jp/books/R000000004-I029315380
• Text Lang: en
• Data Source:
  • JaLC
  • IRDB
  • NDL
  • CiNii Articles
  • KAKEN