Yale School of Organization and Management. I am grateful to Joel Demski, Phil Dybvig, Bengt Holmstrom, Jon Ingersoll, Offer Kella, and Richard Roll for helpful comments. Any errors are my own.
Institutional Markets, Financial Marketing, and Financial Innovation
Article first published online: 30 APR 2012
1989 The American Finance Association
The Journal of Finance
Volume 44, Issue 3, pages 541–556, June 1989
How to Cite
ROSS, S. A. (1989), Institutional Markets, Financial Marketing, and Financial Innovation. The Journal of Finance, 44: 541–556. doi: 10.1111/j.1540-6261.1989.tb04377.x
- Issue published online: 30 APR 2012
- Article first published online: 30 APR 2012
Firms and institutions are monitored and controlled through a complex set of implicit and explicit contractual relations. Because of these agency theoretic relations, institutional behavior in financial markets is not a simple reflection of the preference structures of individuals. Institutional preferences give rise to a demand for new financial instruments and innovations, even when the returns on these instruments are “spanned” in the sense of complete pricing. The innovations can be thought of as solving moral hazard problems. An agency theoretic example serves to illustrate the demand, supply, and financial marketing of stripped securities. In short, institutions matter.