Abstract
ABSTRACT 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 from going awry, the cost of this credit is that banks have bargaining power over the firm's profits, once projects have begun. The firm's portfolio choice of borrowing source and the choice of priority for its debt claims attempt to optimally circumscribe the powers of banks.
Keywords
DebtPortfolioBargaining powerBusinessFinancePower (physics)EconomicsDebt financingMonetary economicsMicroeconomics
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Publication Info
- Year
- 1992
- Type
- article
- Volume
- 47
- Issue
- 4
- Pages
- 1367-1400
- Citations
- 3828
- Access
- Closed
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Cite This
Raghuram G. Rajan
(1992).
Insiders and Outsiders: The Choice between Informed and Arm's‐Length Debt.
The Journal of Finance
, 47
(4)
, 1367-1400.
https://doi.org/10.1111/j.1540-6261.1992.tb04662.x
Identifiers
- DOI
- 10.1111/j.1540-6261.1992.tb04662.x