Should Banks Own Equity? A Corporate Finance Perspective

  title={Should Banks Own Equity? A Corporate Finance Perspective},
  author={Jan Mahrt-Smith},
  • Jan Mahrt-Smith
  • Published 2000
  • Economics
  • This paper examines the question whether banks should hold a share of their borrowing firms' equity. A bank's equity participation can help overcome a well documented agency problem: without the equity participation, the bank would use its informational advantage over other sources of finance (e.g. competing banks) to extract profits from the client firm whenever the firm needs additional investment funds. This, in turn, reduces the incentives of the borrowing firm to generate profits. It is… CONTINUE READING
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