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The Structure and Regulation of Financial Markets$
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Peter D. Spencer

Print publication date: 2000

Print ISBN-13: 9780198776093

Published to Oxford Scholarship Online: October 2011

DOI: 10.1093/acprof:oso/9780198776093.001.0001

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The Theory of Financial Intermediation

The Theory of Financial Intermediation

Chapter:
(p.159) 8 The Theory of Financial Intermediation
Source:
The Structure and Regulation of Financial Markets
Author(s):

Peter d. Spencer

Publisher:
Oxford University Press
DOI:10.1093/acprof:oso/9780198776093.003.0008

It is observed that openness of different media in the capital market allows them to compile information and disseminate it across the community. However, some studies show that its revealing nature can also cripple the capital market and one of its best examples is takeover. On the other hand, private financed companies are not obligatory to publish such information, and that is the reason why companies in knowledge-based industries try to remain private as long as they can, regardless of their need for capital risk. This chapter investigates the ways that financial intermediaries such as banks can use their attributes to assist in the delegation problem. Particularly, it shows how intermediation and assistance of financial intermediaries of debt contracts can prevail over some of the informational and delegational weaknesses of the capital market.

Keywords:   financial intermediation, capital market, capital risk, financial intermediaries, banks, takeover, knowledge-based industries

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