Toward a Theory of Optimal Financial Structure

Each institutional arrangement in a financial system has both advantages and disadvantages in mobilizing savings, allocating capital, diversifying risks, and processing information when facilitating financial transactions. Meanwhile, the factor end...

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Bibliographic Details
Main Authors:	Lin, Justin Yifu, Sun, Xifang, Jiang, Ye
Format:	Policy Research Working Paper
Language:	English
Published:	2012
Subjects:	ACCESS TO BANK ACCESS TO BANK LOANS ACCESS TO CREDIT ACCESS TO SERVICES ACCOUNTING ADVANCED ECONOMIES ADVANCED ECONOMY AGENCY PROBLEM AGENCY PROBLEMS ALTERNATIVE FINANCIAL INSTITUTIONS AMOUNT OF CAPITAL AUDITING AUDITORS BANK BRANCH BANK COMPETITION BANK DEPOSITS BANK MERGERS BANK OFFICERS BANK POLICY BANKING CONCENTRATION BANKING INDUSTRY BANKING SECTOR BANKING STRUCTURE BANKING STRUCTURES BANKING SYSTEM BANKRUPTCY BANKS BARRIER TO ENTRY BIDS BIG BANKS BOND BOND FINANCING BOND HOLDERS BOND ISSUERS BOND ISSUING BOND MARKETS BORROWER BORROWING BUSINESS OPERATION CAPITAL ALLOCATION CAPITAL COST CAPITAL MARKETS CASH FLOWS COLLATERAL COMMERCIAL BANK COMMERCIAL BANKS COMPETITIVE MARKET CORPORATE BONDS CORPORATE FINANCE CORPORATE GOVERNANCE CREDIT HISTORY CREDIT MARKET CREDIT MARKETS CREDIT RATIONING CREDITORS DEBT DEBT MARKETS DEBTS DEMAND FOR CAPITAL DEPOSIT DEPOSIT INSURANCE DEPOSIT INTEREST DEPOSITORS DEPOSITS DEVELOPING COUNTRIES ECONOMIC AGENTS ECONOMIC CONDITIONS ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC POLICY ECONOMIC REFORM ECONOMICS ECONOMIES OF SCALE ECONOMY OF SCALE ENDOWMENTS ENTREPRENEUR ENTREPRENEURSHIP EQUITIES EQUITY FINANCING EXTERNAL FINANCE EXTERNAL FINANCING EXTERNAL FUND FEDERAL RESERVE FEDERAL RESERVE BANK FINANCIAL ARRANGEMENT FINANCIAL CREDIT FINANCIAL CRISES FINANCIAL CRISIS FINANCIAL DEEPENING FINANCIAL DEVELOPMENT FINANCIAL ECONOMISTS FINANCIAL HISTORY FINANCIAL INFORMATION FINANCIAL INSTITUTION FINANCIAL INSTITUTIONS FINANCIAL INTERMEDIARIES FINANCIAL INTERMEDIARY FINANCIAL INTERMEDIATION FINANCIAL LIBERALIZATION FINANCIAL MANAGEMENT FINANCIAL MARKET FINANCIAL MARKETS FINANCIAL REGULATIONS FINANCIAL RESOURCES FINANCIAL SECTOR FINANCIAL SERVICES FINANCIAL STATEMENTS FINANCIAL STRUCTURE FINANCIAL STRUCTURES FINANCIAL STUDIES FINANCIAL SYSTEM FINANCIAL SYSTEMS FINANCIAL TRANSACTIONS FINANCING COSTS FINANCING NEEDS FOREIGN BANK FOREIGN EXCHANGE GLOBAL ECONOMY GOVERNMENT INTERVENTIONS GOVERNMENT REGULATION INCOME INCOME DISTRIBUTION INEQUALITY INFORMAL FINANCE INFORMATION DISCLOSURE INFORMATIONAL ASYMMETRY INSURED DEPOSITS INTEREST RATES INTERNATIONAL BANK INTERNATIONAL TRADE INVESTING INVESTMENT ALTERNATIVES INVESTMENT CHOICES INVESTMENT PORTFOLIO INVESTMENT PROJECTS INVESTMENT RISK IPO JOB CREATION LABOR COSTS LACK OF CAPITAL LEGAL PROTECTION LEGAL REQUIREMENTS LEGAL SYSTEM LEGAL SYSTEMS LENDER LENDERS LENDING DECISION LENDING DECISIONS LIMITED ACCESS LINES OF CREDIT LIQUIDATION LIQUIDITY LOAN LOAN CONTRACTS LOAN DECISIONS LOAN OBLIGATIONS LOAN OFFICERS LOAN SIZE LOCAL BANK LOCAL BANKS LOCAL MARKET MARKET COMPETITION MARKET CONDITIONS MARKET ECONOMY MARKET LIQUIDITY MARKET MECHANISM MARKET PRICES MARKET SHARE MARKET STRUCTURE MARKET VALUE MARKETING MARKETING STRATEGIES MICRO STRUCTURE MULTINATIONAL NATURAL RESOURCES NEW BUSINESS OIL PRICE OPEN MARKET PHYSICAL ASSETS POLITICAL ECONOMY PORTFOLIO INVESTMENTS PRIVATE EQUITY PRIVATE PROPERTY PROFITABILITY PROTECTION OF INVESTORS REAL SECTOR REGIONAL BANKS RENTS RESOURCE ALLOCATION RETURN RETURNS RETURNS TO BORROWERS RISK DIVERSIFICATION RISK MANAGEMENT RISK MANAGEMENT SERVICES RISK MANAGEMENT TOOLS RISK SHARING SAVINGS SHAREHOLDER SHAREHOLDERS SHORT-TERM FINANCING SMALL BANK SMALL BANKS SMALL BORROWERS SMALL BUSINESS SMALL BUSINESS FINANCE SMALL BUSINESS LENDING SMALL BUSINESSES SMALL FIRM FINANCE SMALL LOANS SMALLER FIRMS SOCIAL DEVELOPMENT START-UPS STOCK EXCHANGE STOCK MARKET STOCK MARKETS STOCKS SYSTEMIC RISK TRANSACTION TRANSACTION COST TRANSACTION COSTS UNEMPLOYMENT VALUABLE VENTURE CAPITAL VENTURE CAPITAL FIRMS VENTURE CAPITALISTS
Online Access:	http://www-wds.worldbank.org/external/default/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&menuPK=64187510&searchMenuPK=64187283&siteName=WDS&entityID=000158349_20090903162058 http://hdl.handle.net/10986/4232

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Summary:	Each institutional arrangement in a financial system has both advantages and disadvantages in mobilizing savings, allocating capital, diversifying risks, and processing information when facilitating financial transactions. Meanwhile, the factor endowment in an economy at each stage of its development determines the optimal industrial structure in the real sector, which in turn constitutes the main determinant of the size distribution and risk features of viable enterprises with implications for the appropriate institutional arrangement of financial services at that stage. Therefore, there is an endogenously determined optimal financial structure for the economy at each stage of development.

Toward a Theory of Optimal Financial Structure

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