DP570 | Corporate Finance in the Euromarkets and the Economics of Intermediation

Publication Date

01/08/1991

JEL Code(s)

Keyword(s)

Programme Area(s)

Abstract

This paper examines bond and syndicated bank finance in the Euromarkets. It uses a comprehensive data bank on Euromarkets to evaluate alternative theories of financial intermediation. A model is estimated that provides a good description of firms' choice of finance. The paper concludes that Euromarkets are best described by control (`transactions banking') rather than commitment (`relationship banking'). Bank and bond markets are not perfect substitutes, however, even for large companies: the financing of high-risk projects requires the involvement of banks. Banks therefore retain a central function and the operation of bank syndicates is crucial to the financing of large corporations.