By George M. Constantinides, Milton Harris, Rene M. Stulz
In the eleven articles during this first of 2 components, most sensible students summarize and learn fresh scholarship in corporate finance. overlaying topics from company taxes to behavioral company finance and econometric matters, their articles reveal how specializations resonate with one another and point out most likely instructions for destiny examine. by way of including both demonstrated and rising subject matters, quantity 2 could have an identical lengthy shelf existence and excessive citations that signify quantity 1 (2003).
- Presents coherent summaries of significant finance fields, marking vital advances and revisions
- Describes the easiest company finance study created in regards to the 2008 monetary crises
- Exposes readers to quite a lot of topics defined and analyzed by means of the easiest scholars
Read or Download Handbook of the economics of finance : corporate finance. 2A PDF
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Extra resources for Handbook of the economics of finance : corporate finance. 2A
Sample text
The debt (demand deposits) is special in the sense that it is used as a transaction medium, so it has a convenience yield of ρ. We assume that E < $2, so some debt is needed. The debt is one-period and promises to repay F at the end of the period (since r = 0). Debt is tax-advantaged so that effectively only (1-τ)F needs to be repaid, where τ is the relevant tax rate. If the bank defaults then there is a bankruptcy cost, c, borne by the creditors. e. 6 In other words, there are effectively two outcomes: both loans pay off, which occurs with probability (1-p)2, in which case creditors are repaid in full; there is a default by the bank, in which case creditors lose c.
Pooling is diversifying, and together with tranching, maximizes the size of the low-risk security that can be constructed from the pool of assets. In Glaeser and Kallal (1997) information production by the seller is endogenous. The seller of the asset or pool of assets can produce information at a cost. Also, the seller can choose an amount of information to disclose. In this work the issuer of the securities has a choice of whether or not to gather information. In that case, pooling assets does not have a clear effect on the issuer’s incentives to gather information, and hence on the liquidity of the pool.
A loan can be funded on-balance sheet, in which case bank equity is used to honor the deposit contract should the borrower fail. On-balance sheet funding involves both the bank and the depositors paying information production costs. Alternatively, securitization is modeled as a partial guarantee of the loan, that is, the borrower buys some insurance from the bank. The bank produces information about the borrower and then offers a borrower-specific loan that is observable to investors and credibly communicates borrower type to investors, who then fund the loan directly.