Skip to Main content Skip to Navigation
Journal articles

Imperfect Competition in Financial Markets and Capital Structure

Abstract : We consider a model of corporate finance with imperfectly competitive financial intermediaries. Firms can finance projects either via debt or via equity. Because of asymmetric information about firms’ growth opportunities, equity financing involves a dilution cost. Nevertheless, equity emerges in equilibrium whenever financial intermediaries have sufficient market power. In the latter case, best firms issue debt while the less profitable firms are equity-financed. We also show that strategic interaction between oligopolistic intermediaries results in multiple equilibria. If one intermediary chooses to buy more debt, the price of debt decreases, so the best equity-issuing firms switch from equity to debt financing. This in turn decreases average quality of equity-financed pool, so other intermediaries also shift towards more debt.
Document type :
Journal articles
Complete list of metadata

https://hal-sciencespo.archives-ouvertes.fr/hal-03415678
Contributor : Spire Sciences Po Institutional Repository Connect in order to contact the contributor
Submitted on : Friday, November 5, 2021 - 12:35:20 AM
Last modification on : Friday, November 5, 2021 - 4:00:38 AM

Links full text

Identifiers

Collections

Citation

Sergei Guriev, Dmitriy Kvasov. Imperfect Competition in Financial Markets and Capital Structure. Journal of Economic Behavior and Organization, Elsevier, 2009, 72 (1), pp.131 - 146. ⟨10.1016/j.jebo.2009.05.004⟩. ⟨hal-03415678⟩

Share

Metrics

Record views

8