Back to category: Business Limited version - please login or register to view the entire paper. “Korean Stock Exchange 1998” PART 3: These questions pertain to the case on “Korean Stock Exchange 1998”. QUESTIONS: 1. What are the merits and demerits of a stock versus a bank system of financing? The question can be answered by discussing the differences between a financial system based on relationships versus one based on arms-length transactions. A relationship based financial system is characterized by a close relationship between a bank and a company and has the comparative advantage of allowing a long-term investment perspective. Because of the close relationship, the bank can be relatively assured that it will be chosen to provide all of a company's current and future financing needs. Therefore, more emphasis is placed on all the business the relationship will produce rather than the merits of a particular project at a particular time. It allows banks to "internalize joint surplus" which means they can afford short-term losses by offering lower rates when a company may be financially we... Posted by: Gina Allred Limited version - please login or register to view the entire paper. |
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