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What Do We Know About Capital Structure? Some Evidence from International Data

We investigate the determinants of capital structure choice by analyzing the financing decisions of public firms in the major industrialized countries. At an aggregate level, firm leverage is fairly…
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Financial Dependence and Growth

Does finance affect economic growth? A number of studies have identified a positive correlation between the level of development of a country's financial sector and the rate of growth of its per…
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The Benefits of Lending Relationships: Evidence from Small Business Data

This paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm. The authors analyze data collected in a survey of small firms by the…
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Insiders and Outsiders: The Choice between Informed and Arm's-Length Debt

  • R. Rajan
  • Economics, Business
  • 1 September 1992
While the benefits of bank financing are relatively well understood, the costs are not. This paper argues that while informed banks make flexible financial decisions which prevent a firm's projects…
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Trade Credit: Theories and Evidence

In addition to borrowing from financial institutions, firms may be financed by their suppliers. Although there are many theories explaining why non-financial firms lend money, there are few…
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The Effect of Credit Market Competition on Lending Relationships

This paper provides a simple model showing that the extent of competition in credit markets is important in determining the value of lending relationships. Creditors are more likely to finance credit…
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The Great Reversals: The Politics of Financial Development in the 20th Century

Indicators of the development of the financial sector do not improve monotonically over time. In particular, we find that by most measures, countries were more financially developed in 1913 than in…
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The Cost of Diversity: The Diversification Discount and Inefficient Investment

We model the distortions that internal power struggles can generate in the allocation of resources between divisions of a diversified firm. The model predicts that if divisions are similar in the…
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Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks

Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities that require the processing of soft information. We explore this idea in…
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Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking

Loans are illiquid when a lender needs relationship‐specific skills to collect them. Consequently, if the relationship lender needs funds before the loan matures, she may demand to liquidate early,…
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