An Economic Analysis Of Financial Structure169

Preview 169

Basic Puzzles About Financial Structure Throughout the World 169

Transaction Costs 173

How Transaction Costs Influence Financial Structure 173

How Financial Intermediaries Reduce Transaction Costs 173

Asymmetric Information: Adverse Selection and Moral Hazard 174

The Lemons Problem: How Adverse Selection Influences Financial Structure 175

Lemons in the Stock and Bond Markets 175

Tools to Help Solve Adverse Selection Problems 176

Box 1 The Enron Implosion and the Arthur Andersen Conviction 178

How Moral Hazard Affects the Choice Between Debt and Equity Contracts 180

Moral Hazard in Equity Contracts: The Principal-Agent Problem 181

Tools to Help Solve the Principal-Agent Problem 182

Box 2 E-Finance: Venture Capitalists and the High-Tech Sector 183

How Moral Hazard Influences Financial Structure in Debt Markets 184

Tools to Help Solve Moral Hazard in Debt Contracts 184

Summary 186

Application Financial Development and Economic Growth 187

Financial Crises and Aggregate Economic Activity 189

Factors Causing Financial Crises 189

Application Financial Crises in the United States 191

Box 3 Case Study of a Financial Crisis: The Great Depression 194

Application Financial Crises in Emerging-Market Countries:

Mexico, 1994-1995; East Asia, 1997-1998; and Argentina, 2001-2002 194

Summary, Key Terms, Questions and Problems, and Web Exercises 199

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Responses

  • Segan Negassi
    How moral and adverse selection affects the stock and the bonds market?
    8 years ago
  • Timotea
    How moral hazard influences financial structure in debt markets?
    8 years ago
  • Leena
    How adverse selection, moral hazard and principle agent problem influence financial structure?
    8 years ago

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