Financial Intermediation and Delegated Monitoring

Diamond, Douglas W.

doi:10.2307/2297430

Cited by 6,400 publications

(3,798 citation statements)

References 20 publications

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“…We assume that bankers have an advantage in monitoring projects (Diamond 1984) so that they are more productive than savers, i.e. A B ≥ 1 = A S (for simplicity, only banks generate a social surplus).…”

Section: The Basic Modelmentioning

confidence: 99%

Sovereign Default, Domestic Banks, and Financial Institutions

2012

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We study the role of domestic financial institutions in sustaining capital flows to the private and public sector of a country whose government can default on its debt. As in recent public debt crises, in our model public defaults weaken banks' balance sheets, disrupting domestic financial markets. This effect leads to a novel complementarity between private capital inflows and public borrowing, where the former sustain the latter by boosting the government's cost of default. Our key message is that, by shaping the direction of private capital flows, financial institutions determine whether financial integration improves or reduces government discipline. We explore the implications of this complementarity for financial liberalization and debt-financed bailouts of banks. We present some evidence consistent with complementarity.JEL classification: F34, F36, G15, H63.

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Section: The Basic Modelmentioning

confidence: 99%

Sovereign Default, Domestic Banks, and Financial Institutions

2012

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“…His research (see, e.g., Diamond 1984 and1996) concludes that investors are keener to lend their free financial resources to banks, which subsequently lend them to borrowers, rather than lend them themselves directly if the costs of monitoring of borrowers are too high for the investors. Banks have, in comparison with individual investors, an advantage that they are able to monitor borrowers more efficiently.…”

Section: Literature Reviewmentioning

confidence: 99%

Loan versus Bond Financing of Czech Companies and the influence of the Global Recession

Mačí¹,

Hovorková²

2017

JOC

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European economies are traditionally considered to be bank based regarding the debt financing. However, in times of crises in the bank sector, this feature may indicate a weakness of these economies when the credit squeeze phenomenon may occur and companies' competitiveness might be negatively affected thanks to unstable financing possibilities. In such conditions, a shift from bank loans to bonds might be expected. That is why this paper focuses on mutual development of corporate bond and business loan markets in the developing Czech economy in the years 2006-2014 with regard to the impacts of the global financial crisis of 2008/2009. The main goal of this article is to identify whether, thanks to the impacts of the global recession in 2009, there was a shift in Czech economy in business financing from the loans to bonds in a similar fashion as in the case of East Asian economies after their financial crisis in the nineties. Since Czech companies practically do not use short-term bonds, a mutual relationship is examined between amounts of long-term corporate bonds and economic development captured by the GDP per capita, and between long-term business loans and development of long-term corporate bonds. The main findings of this study are that since the global financial crisis, bond financing of businesses has been growing faster than loan financing. Czech economy thus shifts and becomes more bond market-based. The development of bond financing is positively correlated with the GDP per capita. Time series of both loans and bonds develop along the same trend. However, residual components are correlated negatively, which confirms the standing of loans and bonds as substitutes. Two main practical implications may be derived from this study. First, a growing usage of bonds increases demands on the market regulator, especially in the field of monitoring. Second, the growing bond market leads to the increased effectiveness, which makes additional effective sources of finance available to businesses and makes Czech economy more competitive even in times of difficulties in the banking sector.

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“…First, due to the unique institutional background (such as weak legal enforcement, overall poor corporate governance, etc. ), the monitoring role of private ownership over companies is questioned: For example, although most studies on developed markets agree that direct bank ownership provides better capital access to, and better monitoring of, companies (Diamond, 1984;Barth et al, 2006), Lin, Zhang, and Zhu (2009) document that bank ownership in China is associated with poorer operating performance, possibly due to inefficient investments.…”

Section: Ownership and Earnings Managementmentioning

confidence: 99%

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

2014

China Account Financ Rev

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China’s stock market has gone through major structural changes since its inception in the early 1990s. In this survey article, we review the empirical literature published in 15 leading accounting and finance journals from 1998 to 2013 that documents these important structural changes. In analysing this literature, we focus on the ‘distinctiveness’ of the Chinese stock market compared with developed stock markets (e.g. US) and the research opportunities generated by the China setting. Key themes include China’s share issue privatisation (SIP) reforms, the political connections in privately owned companies, the characteristics of Chinese listed companies and their governance, the regulatory environment reforms in China, and the evolving role played by auditors and other information intermediaries.

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Financial Intermediation and Delegated Monitoring

Cited by 6,400 publications

References 20 publications

Sovereign Default, Domestic Banks, and Financial Institutions

Sovereign Default, Domestic Banks, and Financial Institutions

Loan versus Bond Financing of Czech Companies and the influence of the Global Recession

Structural Changes in the Chinese Stock Market: A Review of Empirical Research

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