Financial intermediary-coalitions
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Abstract
In this article an environment in which the investment opportunities of agents are private information is studied and it is shown that financial intermediaries arise endogenously within that environment. It is established that financial intermediaries are part of an efficient arrangement in the sense that they are needed to support the authors' private information core allocations. These intermediaries, which are coalitions of agents, exhibit the following characteristics in equilibrium: they borrow from and lend to large groups of agents; they produce information about investment projects; and they issue claims that have different state contingent payoffs than claims issued by ultimate borrowers.
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Financial intermediaries may arise to monitor firms and managers.
“Given these barriers to corporate governance by small and large shareholders, financial intermediaries may arise to monitor firms and managers.”
From Finance, Growth, and Inequality (2021) · cites this paper as Boyd and Prescott (1986)
The paper’s opening summary says financial intermediaries arise endogenously and produce information about investment projects. The Introduction also discusses monitoring borrowers, but attributes that model to Diamond. Boyd and Prescott do not establish that intermediaries arise to monitor firms’ managers in response to barriers to shareholder governance. (LLM, conf=0.84)
Experimental — accuracy not yet measuredFinancial intermediaries may reduce the costs of acquiring and processing information and improve resource allocation.
“Financial intermediaries may reduce the costs of acquiring and processing information and improve resource allocation”
From Finance, Growth, and Inequality (2021) · cites this paper as Boyd and Prescott 1986
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Cites
Coase, R. H. (1937) · Economica · doi:10.1111/j.1468-0335.1937.tb00002.x · Cited by 23,972 · see citing works
Financial intermediation and delegated monitoring
Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476 · see citing works
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N. Berger, A., & F. Udell, G. (1998) · Journal of Banking & Finance · doi:10.1016/s0378-4266(98)00038-7 · Cited by 3,690 · see citing works
“…intermediation --which motivates intermediaries as delegated monitors on behalf of investors (e.g., Diamond 1984, Ramakrishnan and Thakor 1984, and Boyd and Prescott 1986) --is mostly a theory that applies to the provision of intermediated finance in private markets to small, informationally…”
Chapter 12 Finance and Growth: Theory and Evidence
Levine, R. (2005) · Handbook of Economic Growth · doi:10.1016/s1574-0684(05)01012-9 · Cited by 2,889 · see citing works
Stock markets, banks, and growth: Panel evidence
Beck, T., & Levine, R. (2004) · Journal of Banking & Finance · doi:10.1016/s0378-4266(02)00408-9 · Cited by 2,067 · see citing works
Financial Structure and Economic Growth
(2001) · The MIT Press eBooks · doi:10.7551/mitpress/3001.001.0001 · Cited by 544 · see citing works
The value of bank durability: Borrowers as bank stakeholders
SLOVIN, M. B., SUSHKA, M. E., & POLONCHEK, J. A. (1993) · The Journal of Finance · doi:10.1111/j.1540-6261.1993.tb04708.x · Cited by 418 · see citing works
Financial intermediation and economic growth: Does income matter?
Seven, Ü., & Yetkiner, H. (2016) · Economic Systems · doi:10.1016/j.ecosys.2015.09.004 · Cited by 96 · see citing works
Financial development and economic growth: global and African evidence
Murinde, V. (2012) · Journal of African Economies · doi:10.1093/jae/ejr042 · Cited by 65 · see citing works
Finance, Growth, and Inequality
Levine, R. (2021) · IMF Working Papers · doi:10.5089/9781513583365.001 · Cited by 62 · see citing works
- Authors
- Boyd, J. H., & Prescott, E. C.
- Affiliations
- University of Minnesota (US)
- Venue
- Journal of Economic Theory
- Publisher
- Elsevier BV
- Published
- 1986-04
- Volume
- 38
- Issue
- 2
- Pages
- 211-232
- ISSN
- 0022-0531 (ISSN-L)
- OpenAlex
- W2084894276
- Cited by
- 1,385
- References
- 2
- Citations by year
- 2026: 24 · 2025: 46 · 2024: 34 · 2023: 44 · 2022: 28 · 2021: 55 · 2020: 42 · 2019: 63 · 2018: 59 · 2017: 59 · 2016: 53 · 2015: 59 · 2014: 68 · 2013: 62 · 2012: 69
- FWCI
- 43.15
- Type
- journal article
- Language
- en
- Open access
- green
- doi.org
- Licence
- Locations
- Journal of Economic Theory (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Funders
- National Science Foundation
- University of Minnesota
- Topics
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Economic theories and models
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Game Theory and Voting Systems
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Keywords
- financial intermediaries, private information, investment opportunities, information production, state-contingent claims, lending and borrowing, efficient allocation
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