The Effects of Market Deregulation— A Financial Structure Analysis

The paper develops an analysis model for measuring the effects of regulatory reforms on risk and wealth distribution between different stakeholders. By introducing the concept of financial architecture and the idea of the firm as a nexus of contracts, the paper broadens the analysis on wealth distribution and the impact on the cost of capital. The paper concludes that cost reductions stemming from increased competition are partly offset by increased cost of capital because sensitivity to systematic and unsystematic risk differs between stakeholders. This has implications for firms’ capital structure and their incentives for pursuing long-term invest