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
JEL(s):	G32
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.