Home About Latest Browse RSS Advanced Search

Federal Reserve Bank of Richmond
Working Paper
Financing development : the role of information costs
Jeremy Greenwood
Juan M. Sanchez
Cheng Wang
Abstract

To address how technological progress in financial intermediation affects the economy, a costly-state verification framework is embedded into the standard growth model. The framework has two novel features. First, firms differ in the risk/return combinations that they offer. Second, the efficacy of monitoring depends upon the amount of resources invested in the activity. A financial theory of firm size results. Undeserving firms are over financed, deserving ones underfunded. Technological advance in intermediation leads to more capital accumulation and a redirection of funds away from unproductive firms toward productive ones. Quantitative analysis suggests that finance is important for growth.


Download Full text
Download Full text
Cite this item
Jeremy Greenwood & Juan M. Sanchez & Cheng Wang, Financing development : the role of information costs, Federal Reserve Bank of Richmond, Working Paper 08-08, 2009.
More from this series
JEL Classification:
Subject headings:
Keywords: Economic development
For corrections, contact Christian Pascasio ()
Fed-in-Print is the central catalog of publications within the Federal Reserve System. It is managed and hosted by the Economic Research Division, Federal Reserve Bank of St. Louis.

Privacy Legal