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Chapter 8 Financial Structure, Transaction Costs, and Asymmetric Information

Chapter Objectives

By the end of this chapter, students should be able to:

  1. Describe how nonfinancial companies meet their external financing needs.
  2. Explain why bonds play a relatively large role in the external financing of U.S. companies.
  3. Explain why most external finance is channeled through financial intermediaries.
  4. Define transaction costs and explain their importance.
  5. Define and describe asymmetric information and its importance.
  6. Define and explain adverse selection, moral hazard, and agency problems.
  7. Explain why the financial system is heavily regulated.