Heterogeneous multiple bank financing: does it reduce inefficient credit-renegotation incidences?

Arbeitspapier

Small and medium-sized firms often obtain capital via a mixture of relationship and arm's-length bank lending. We show that such heterogeneous multiple bank financing leads to a lower probability of ineefficient credit foreclosure than both monopoly relationship lending and homogeneous multiple bank financing. Yet, in order to reduce hold-up and coordination-failure risk, the relationship bank's fraction of total firm debt must not become too large. For firms with intermediate expected profits, the probability of ineefficient credit-renegotiation is shown to decrease along with the relationship bank's information precision. For firms with extremely high or extremely low expected returns, however, it increases.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Frankfurt School - Working Paper Series ; No. 83

Classification and Topics

• Classification: Wirtschaft ; Asymmetric and Private Information; Mechanism Design ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Transactional Relationships; Contracts and Reputation; Networks
• Subject: Relationship lending ; asymmetric information ; financial distress ; hold-up ; coordination failure

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Bannier, Christina E.
• Event: Veröffentlichung
• (who): Frankfurt School of Finance & Management
• (where): Frankfurt a. M.
• (when): 2007

Further information

• Handle: http://hdl.handle.net/10419/27850
• URN: urn:nbn:de:101:1-20080827321
• Last update: 10.03.2025, 11:43 AM CET