Template-Type:ReDIF-Paper 1.0  
Title:Seniority Structure and Financial Intermediation
Author-Name:  Schuhmacher, Joachim
Classification-JEL:  D82, G21, G32, G33
Keywords: Seniority Structure, Financial Intermediation, Asymmetric Information.
Abstract:  The financial structure of firms is diverse. Firms
      issue many different types of financial claims. This article
      focuses on the seniority structure of debt contracts. It is
      outlined under what conditions firms can improve the outcome of their 
      financial decisions by choosing seniority structure. The main reason 
      for issuing debt contracts with different priority is that in case of 
      financial distress firms only have to renegotiate with a smaller number 
      of creditors. This outcome makes observation of the firm`s 
      condition by creditors more likely. If observation 
      occurs seniority decreases observation costs. But observation 
      can also harm the owner so that seniority could be inferior 
      to a debt structure which treats all creditors identically.
      Later on we introduce a financial intermediary into the model.
      It is outlined how a financial intermediary can be welfare improving 
      on the junior level.
Length: pages
Creation-Date: 1998-10
Revision-Date: 
Handle: RePEc:bon:bonsfa:583
File-URL: http://www.wiwi.uni-bonn.de/bgsepapers/bonsfa/bonsfa583.pdf
File-Format: application/pdf