Linking banks, bonds, and firm size
A recent paper from the San Francisco Federal Reserve constructs a model where changing the relative costs of bank and bond financing affects the distribution of firm size through impact on aggregate capital stock, output and welfare.
The paper, entitled ‘A theory of banks, bonds and the distribution of firm size', finds that increasing bank efficiency by reducing monitoring costs reallocates production towards the smallest firm and allows very small new firms to start producing. The real wage
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