| Over the years, financial economists have continued to search for separate theories of optimal corporate financial policy and financial intermediation. Interestingly, many of the same costly market imperfections which give rise to positive theories of corporate financial policy might also explain the purpose which intermediaries serve in our economy. Furthermore, casual observation suggests that well-functioning modern economies require the existence of both capital markets and financial intermediary institutions. However, we do not yet fully understand the complementary nature of the interaction between corporate financial policy and the process of financial intermediation.; The purpose of this dissertation, therefore, is to provide an analysis of the complementary roles of direct financial contract markets and intermediated financial contract markets in the modern theory of corporate finance. The theory which is developed accomplishes several objectives. First, we endogenize the structure of the firm's financial contracts in an environment where investment decisions are also endogenous. We accomplish this in an economy which is characterized by the existence of multiple information problems. Second, we provide insights into the role of multiple claimants in the firm's financial structure. Here, multiple information problems lead to a theory of complex financial structure. Third, we formally demonstrate the complementarity of financial intermediary institutions and capital markets were monitoring is costly. Finally, we analyze the sensitivity of the firm's optimal contractual allocation with respect to different properties of the monitoring technology. This allows us to address the relative efficiency of the optimal contractual allocations in an economy characterized by multiple claimants and changes in monitoring technologies. |
