Discussion paper

DP570 Corporate Finance in the Euromarkets and the Economics of Intermediation

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.

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Citation

Davis, E and C Mayer (1991), ‘DP570 Corporate Finance in the Euromarkets and the Economics of Intermediation‘, CEPR Discussion Paper No. 570. CEPR Press, Paris & London. https://cepr.org/publications/dp570