Bank finance versus bond finance: what explains the differences between US and Europe?

Arbeitspapier

We present a dynamic general equilibrium model with agency costs, where heterogeneous firms choose among two alternative instruments of external finance - corporate bonds and bank loans. We characterize the financing choice of firms and the endogenous financial structure of the economy. The calibrated model is used to address questions such as: What explains differences in the financial structure of the US and the euro area? What are the implications of these differences for allocations? We find that a higher share of bank finance in the euro area relative to the US is due to lower availability of public information about firms' credit worthiness and to higher efficiency of banks in acquiring this information. We also quantify the effect of differences in the financial structure on per-capita GDP.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 547

Classification and Topics

• Classification: Wirtschaft ; Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data) ; Financial Markets and the Macroeconomy ; Computable General Equilibrium Models
• Subject: agency costs ; financial structure ; heterogeneity ; Fremdkapital ; Kredit ; Unternehmensanleihe ; Kosten-Nutzen-Analyse ; Prinzipal-Agent-Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): De Fiore, Fiorella ; Uhlig, Harald
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2005

Further information

• Handle: http://hdl.handle.net/10419/152981
• Last update: 10.03.2025, 11:43 AM CET