Chapter 8

Chapter 8 - Chapter 8-An Economic Analysis of Financial...

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Chapter 8-An Economic Analysis of Financial Structure Eight Basic Facts 1.Stocks are not the most important sources of external financing for businesses 2.Issuing marketable debt and equity securities is not the primary way in which businesses finance their operations 3.Indirect finance is many times more important than direct finance 4.Financial intermediaries, particularly banks, are the most important source of external funds used to finance businesses. 5.The financial system is among the most heavily regulated sectors of the economy 6.Only large, well-established corporations have easy access to securities markets to finance their activities 7.Collateral is a prevalent feature of debt contracts for both households and businesses. 8.Debt contracts are extremely complicated legal documents that place substantial restrictive covenants on borrowers Transaction Costs •Financial intermediaries have evolved to reduce transaction costs –Economies of scale –Expertise Asymmetric Information
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Chapter 8 - Chapter 8-An Economic Analysis of Financial...

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