Wang, Tianxi (2013) A model of leverage based on risk sharing. Economics Letters, 119 (1). pp. 97-100. DOI https://doi.org/10.1016/j.econlet.2013.02.001
Wang, Tianxi (2013) A model of leverage based on risk sharing. Economics Letters, 119 (1). pp. 97-100. DOI https://doi.org/10.1016/j.econlet.2013.02.001
Wang, Tianxi (2013) A model of leverage based on risk sharing. Economics Letters, 119 (1). pp. 97-100. DOI https://doi.org/10.1016/j.econlet.2013.02.001
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.
| Item Type: | Article |
|---|---|
| Subjects: | H Social Sciences > HA Statistics H Social Sciences > HB Economic Theory |
| Divisions: | Faculty of Social Sciences Faculty of Social Sciences > Economics, Department of |
| SWORD Depositor: | Unnamed user with email elements@essex.ac.uk |
| Depositing User: | Unnamed user with email elements@essex.ac.uk |
| Date Deposited: | 18 Oct 2013 12:47 |
| Last Modified: | 15 Jan 2022 00:47 |
| URI: | http://repository.essex.ac.uk/id/eprint/8190 |