Associate Professor of Finance, McGill University. Financial support from the Financial Research Foundation of Canada and the Faculty of Management, McGill University is gratefully acknowledged. An earlier version of this paper was presented at the annual meeting of the European Finance Association, Jerusalem, 1982. The author is grateful to J.-P. Chateau, E. Losq, and R. Taggart for helpful comments but, of course, remains responsible for any errors.
Valuation, Capital Structure, and Shareholder Unanimity for Depository Financial Intermediaries
Article first published online: 30 APR 2012
1983 The American Finance Association
The Journal of Finance
Volume 38, Issue 3, pages 857–871, June 1983
How to Cite
SEALEY, C. W. (1983), Valuation, Capital Structure, and Shareholder Unanimity for Depository Financial Intermediaries. The Journal of Finance, 38: 857–871. doi: 10.1111/j.1540-6261.1983.tb02506.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
The theory of corporate finance is not directly applicable to financial intermediary decision-making. The lack of applicability stems largely from the particular conditions that distinguish intermediary operations from those of the nonfinancial firm. First, when intermediaries accept deposit financing, they must produce services such as liquidity and convenience at considerable expense for real resources. Second, the introduction of intermediation is likely to be accompanied by incomplete markets so that shareholder unanimity is not in general valid. In this paper, a model with incomplete markets is developed and a shareholder approved rule for intermediary capital structure decisions is derived.