Innovations in financial services, relationships, and risk sharing

Franklin Allen, Douglas Gale

    Research output: Contribution to journalArticle

    Abstract

    Relationships between intermediaries and their customers have become increasingly important in recent years. This paper argues that the need for costly ex ante information acquisition and analysis is a major barrier to the participation of investors and firms in sophisticated markets. Long-term relationships between intermediaries and their customers, in which intermediaries provide implicit insurance to customers, can be an effective substitute for costly ex ante investigation. In this way, intermediaries allow firms and investors to reap the benefits of financial markets. Relationships are easiest to sustain when the ongoing benefits to both parties are high. As a result, competition may lower the benefits that can be obtained from relationships.

    Original languageEnglish (US)
    Pages (from-to)1239-1253
    Number of pages15
    JournalManagement Science
    Volume45
    Issue number9
    StatePublished - Sep 1999

    Fingerprint

    Innovation
    Risk sharing
    Financial services
    Intermediaries
    Service relationships
    Investors
    Long-term relationships
    Participation
    Insurance
    Information acquisition
    Financial markets
    Substitute

    ASJC Scopus subject areas

    • Strategy and Management
    • Management Science and Operations Research

    Cite this

    Innovations in financial services, relationships, and risk sharing. / Allen, Franklin; Gale, Douglas.

    In: Management Science, Vol. 45, No. 9, 09.1999, p. 1239-1253.

    Research output: Contribution to journalArticle

    Allen, F & Gale, D 1999, 'Innovations in financial services, relationships, and risk sharing', Management Science, vol. 45, no. 9, pp. 1239-1253.
    Allen, Franklin ; Gale, Douglas. / Innovations in financial services, relationships, and risk sharing. In: Management Science. 1999 ; Vol. 45, No. 9. pp. 1239-1253.
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