Implications of Corporate Capital Structure Theory for Banking Institutions

This paper applies some recent advances in corporate capital structure theory to the determination of optimal capital in banking. The effects of corporate and personal taxes, government regulation, the technology of producing deposit services and the costs of bankruptcy and agency problems are all discussed in the context of the U.S. commercial banking system. The analysis suggests explanations for why commercial banks tend to have relatively less capital than nonfinancial firms, why commercial bank leverage has tended to increase over time and why large banks tend to have relatively less capital than small banks.

A Game Theoretic Approach to Collections and Disbursements

Many firms use lock boxes serviced by local depository banks in an attempt to reduce collection float. Likewise, an increasing number of large firms use controlled disbursing to pay their bills, in order to increase and control their disbursement float. Almost all the literature treats the lock box location problem and the disbursement bank location problem separately. The purpose of this paper is to examine simultaneously the optimal collection strategies of sellers and the optimal payment strategies of buyers. Our analysis involves multiple periods where the decisions of each party take into consideration the potential strategies of the other. That is, the collection-payment problem is analyzed both as a two-party and a multiple-party game. The rationale for casting the problem in a game theoretic framework is quite simple: When a seller selects lock boxes and depository banks he takes into consideration the fact that his buyers may use controlled disbursing banks. Likewise, when buyers select disbursing banks or branches they realize that the seller may shift the location of the designated lock boxes in response. Obviously, our analysis is relevant primarily for firms that manage large amounts of payments and collections and use sophisticated cash management techniques.cash management, collection float, controlled disbursing, disbursement float, lock boxes, subgame perfect equilibrium

An Integrated Model for Accounts Receivable Management

The purpose of this paper is to present an integrated model of accounts receivable. The model incorporates the major components of credit and collection policies such as the cash discount, credit period and charges for late payments. It considers the investment in accounts receivable, losses from bad debts and the impact of credit terms on sales. The objective is to maximize the present value of net earnings from accounts receivable. After deriving the general model, a simplified version is solved by classical optimization techniques under various sets of assumptions that are gradually relaxed.