Financial claims and product market competition: An explanation for permitting banks to hold equity in firms
DOI:
https://doi.org/10.2298/YJOR0802235PKeywords:
equity holding, Glass-Steagall act, conjectural variation, capital regulationAbstract
This paper examines financial claims for lending if banks are permitted to hold equity in productive firms. We demonstrate that in situations where an oligopolistic product market has relatively high competition, e.g., quasi-competitive behavior, equity holding by banks is likely to do little damage. However, where the product market has relatively high collusion, e.g., corporative behavior, equity holding by banks are very unlikely to hold equity in firms. Our findings provide an alternative argument that lifting the Glass-Steagall Act restricting banks from holding equity in firms should give little cause for concern.References
Arping, S. (1999) Banking, commerce, and antitrust. u: Working Paper HEC Université de Lausanne
Baumol, W.J., Panzar, J., Willig, R. (1982) Contestable markets and the theory of industry structure. New York, itd: Harcourt, Brace and Jovanovich
Bhattacharya, S., Chiesa, G. (1995) Proprietary information, financial intermediation, and research incentives. Journal of Financial Intermediation, 4(4): 328
Black, F., Scholes, M. (1973) The pricing of options and corporate liabilities. Journal of Political Economy, vol. 81, br. 3, str. 637-54
Brander, J.A., Lewis, T.R. (1986) Oligopoly and financial structure: The limited liability effect. American Economic Review, 76 (5) 956-970
Cavalluzzo, K.S., Cavalluzzo, L.C., Wolken, J.D. (2002) Competition, small business financing, and discrimination: Evidence from a new survey. Journal of Business, 75(4): 641
Cavalluzzo, K.S., Cavalluzzo, L.C. (1998) Market structure and discrimination: The case of small businesses. Journal of money credit and banking, 30(4): 771
Cestone, G., White, L. (2003) Anticompetitive financial contracting: The design of financial claims. Journal of Finance, 58(5): 2109
Clarke, R., Davies, S.W. (1982) Market structure and price-cost margins. Economica, 49(195): 277
Cosimano, T., McDonald, B. (1998) What's different among banks. Journal of Monetary Economics, 41, 1, 57-70
Crouhy, M., Galai, D. (1991) A contingent claim analysis of a regulation depository institutation. Journal of Banking and Finance, 15, (1), 73-90
da Rin, M., Hellmann, T.F. (2002) Banks as catalysts for industrialization. Journal of Financial Intermediation, 11(4): 366
de Long, B. (1991) Did J.P. Morgan's men add value?: An economist's perspective on financial capitalism'. u: Temin P. [ur.] Inside the Business Enterprise: Historical Perspectives on the Use of Information, Chicago: University of Chicago Press
Denis, D.J., Denis, D.J., Sarin, A. (1997) Ownership structure and top executive turnover. Journal of Financial Economics, 45(2): 193
Fee, E.C. (2002) The costs of outside equity control: Evidence from motion picture financing decisions. Journal of Business, 75(4): 681
Finn, W., Frederick, J. (1992) Banks and banking periodicals. ABA Banking Journal, 84 (4) 50
Hannan, T.H. (1991) Bank commercial loan markets and the role of market structure: Evidence from surveys of commercial lending. Journal of Banking and Finance, 15, str 133-149
Kashyap, A.K., Rajan, R., Stein, J.C. (2002) Banks as liquidity providers: An explanation for the coexistence of lending and deposit-taking. Journal of Finance, 57,(1), 33-73
Mullins, H.M., Pyle, D.H. (1994) Liquidation costs and risk-based bank capital. Journal of Banking and Finance, 18(1): 113-138
Peek, J., Rosengren, E.S. (1996) Small business credit availability: How important is size of lender. u: Saunders A., and Walter I. [ur.] Financial System Design: The Case Universal Banking, Homewood, IL: Irwin Publishing
Poitevin, M. (1989) Collusion and the banking structure of a duopoly. Canadian Journal of Economics, 22(2): 263
Santomero, A.M. (1984) Modeling the banking firm. Journal of Money, Credit and Banking, 16, 4, 576-712
Sapienza, P. (2002) The effects of banking mergers on loan contracts. Journal of Finance, 57(1): 329
Saunders, A. (1994) Banking and commerce: An overview of the public policy issues. Journal of Banking and Finance, vol. 18, str. 231-254
Sealey, C. (1980) Deposit rate-setting, risk aversion and the theory of depository financial intermediaries. Journal of Finance, 35, 5, 1139-1154
Shleifer, A., Vishny, R.W. (1986) Large shareholders and corporate control. Journal of Political Economy, vol. 94, str. 461-488
Shleifer, A., Vishny, R.W. (1997) A survey of corporate governance. Journal of Finance, June, vol. 52, Issue 2, str. 737-783
Showalter, D. (1995) Oligopoly and financial structure: Comment. American Economic Review, 85 (3) 647-653
Spagnolo, G. (2000) Debt as a (credible) collusive device. u: SSE Working Paper 243, Stockholm: School of Economics
Straham, P.E., Weston, J.P. (1996) Small business lending and bank consolidation: Is there a cause for concern?. Current Issues in Economics and Finance, 2 1-6
Veendorp, E.C.H. (1991) Entry deterrence, divisionalization, and investment decisions. Quarterly Journal of Economics, 106(1): 297
Wong, K.P. (1997) On the determinants of bank interest margins under credit and interest rate risks. Journal of Banking and Finance, 21, pp. 251-271
Zarruk, E., Madura, J. (1992) Optimal bank interest margin under capital regulation and deposit insurance. Journal of Financial and Quantitative Analysis, 27, 1, 143-149
Downloads
Published
Issue
Section
License
Copyright (c) YUJOR
This work is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.