| Article ID | Journal | Published Year | Pages | File Type |
|---|---|---|---|---|
| 5059967 | Economics Letters | 2013 | 4 Pages |
Abstract
This paper offers a new approach, based on risk sharing, to endogenize the leverage of financial intermediaries. It endogenizes debt as the optimal contract for external financing, thereby capturing two features of leverage: debt serves to boost the return on equity, and equity provides “safety net” for debt. The paper derives a novel prediction that when the asset-side risk rises, the leverage ratio is reduced, but the profit margin of leveraging is actually widened.
Related Topics
Social Sciences and Humanities
Economics, Econometrics and Finance
Economics and Econometrics
Authors
Tianxi Wang,