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particular, the information the FI generates regarding the firm is frequently updated as
2 For a theoretical modeling of the delegated monitor function, see D. W. Diamond, “Financial Intermediaries and
Delegated Monitoring,” Review of Economic Studies 51 (1984), pp. 393–414; J. H. Boyd and E. C. Prescott, “Financial Intermediary—Coalitions,” Journal of Economic Theory 38 (1986), pp. 211–32; and A. Winton, “Competition
among Financial Intermediaries When Diversification Matters,” Journal of Financial Intermediation 6 (1997),
pp. 307–46. sau86198_ch01.qxd 4/21/02 8:52 PM Page 7 Chapter 1 Why Are Financial Intermediaries Special? 7 its loan renewal decisions are made. When bank loan contracts are sufficiently short
term, the banker becomes almost like an insider to the firm regarding informational familiarity with its operations and financial conditions. Indeed, this more frequent monitoring often replaces the need for the relatively inflexible and hard-to-enforce
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This document was uploaded on 03/09/2014 for the course ACC 301 at HELP University.
- Spring '09