Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/25441
Authors: 
Cerasi, Vittoria
Daltung, Sonja
Year of Publication: 
2004
Series/Report no.: 
CFS Working Paper 2004/18
Abstract: 
This paper analyzes banks' choice between lending to firms individually and sharing lending with other banks, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending is optimal whenever the benefit of greater diversification in terms of higher monitoring dominates the costs of free-riding and duplication of efforts. The model predicts a greater use of multiple-bank lending when banks are small relative to investment projects, firms are less profitable, and poor financial integration, regulation and inefficient judicial systems increase monitoring costs. These results are consistent with empirical observations concerning small business lending and loan syndication.
Subjects: 
individual-bank lending
multiple-bank lending
monitoring
diversification
free-riding problem
JEL: 
D82
G21
G32
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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