DP570 Corporate Finance in the Euromarkets and the Economics of Intermediation
|Author(s):||E Philip Davis, Colin Mayer|
|Publication Date:||August 1991|
|Keyword(s):||Eurobonds, Financial Intermediation, Syndicated Bank Credit|
|Programme Areas:||Applied Macroeconomics|
|Link to this Page:||cepr.org/active/publications/discussion_papers/dp.php?dpno=570|
This paper examines bond and syndicated bank finance in the Euromarkets. It uses a comprehensive data bank on Euromarkets to evaluate alternative theories of financial intermediation. A model is estimated that provides a good description of firms' choice of finance. The paper concludes that Euromarkets are best described by control (`transactions banking') rather than commitment (`relationship banking'). Bank and bond markets are not perfect substitutes, however, even for large companies: the financing of high-risk projects requires the involvement of banks. Banks therefore retain a central function and the operation of bank syndicates is crucial to the financing of large corporations.