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Title:Heterogeneous multiple bank financing: does it reduce inefficient credit-renegotation incidences? PDF Logo
Authors:Bannier, Christina E.
Issue Date:2007
Series/Report no.:Working paper series // Frankfurt School of Finance & Management 83
Abstract: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.
Subjects:Relationship lending
asymmetric information
financial distress
hold-up
coordination failure
JEL:D82
G21
L14
Persistent Identifier of the first edition:urn:nbn:de:101:1-20080827321
Document Type:Working Paper
Appears in Collections:Frankfurt School - Working Paper Series, Frankfurt School of Finance and Management

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