Advanced Search
MyIDEAS: Login to save this paper or follow this series

Costs and benefits of creditor concentration: An empirical approach

Contents:

Author Info

  • Amanda Carmignani

    ()
    (Bank of Italy)

  • Massimo Omiccioli

    ()
    (Bank of Italy)

Abstract

High concentration of creditors can have two beneficial effects on borrowers: i) by enhancing lendersÂ’ ability to monitor, it can reduce the likelihood of financial distress; ii) by reducing coordination failure among creditors, it can help a distressed firm to avoid bankruptcy. However, a strong probability of debt renegotiation can exert a feedback effect on the likelihood of financial distress, by generating perverse ex-ante incentives for borrowers (soft budget constraint). Moreover, high concentration of creditors can expose borrowers to greater liquidity risks. Using Italian data on manufacturing firms, we try to separate empirically these conflicting effects. Our results show that, if we control for the soft-budget-constraint and liquidity effects, high concentration of bank credit reduces the likelihood of financial distress and liquidation, as predicted by the literature on relationship banking. But these benefits do not come without costs: i) enhanced monitoring is offset by the soft-budget-constraint effect and ii) higher concentration of credit lines increases liquidity risks and thus makes both financial distress and liquidation more likely. Ultimately, the overall effect of more concentrated banking relations is a lower probability of liquidation but a higher probability of financial distress. This helps to explain the widespread existence of multiple but asymmetric banking relations in Italy.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.bancaditalia.it/pubblicazioni/econo/temidi/td07/td645_07/td645/en_tema_645.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Bank of Italy, Economic Research and International Relations Area in its series Temi di discussione (Economic working papers) with number 645.

as in new window
Length:
Date of creation: Nov 2007
Date of revision:
Handle: RePEc:bdi:wptemi:td_645_07

Contact details of provider:
Postal: Via Nazionale, 91 - 00184 Roma
Web page: http://www.bancaditalia.it
More information through EDIRC

Related research

Keywords: financial distress; liquidazione; monitoring; relationship lending; soft budget constraint;

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

No references listed on IDEAS
You can help add them by filling out this form.

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Giacinto Micucci & Paola Rossi, 2010. "Debt restructuring and the role of lending technologies," Temi di discussione (Economic working papers) 763, Bank of Italy, Economic Research and International Relations Area.
  2. Bonfim, Diana & Dias, Daniel A. & Richmond, Christine, 2012. "What happens after corporate default? Stylized facts on access to credit," Journal of Banking & Finance, Elsevier, vol. 36(7), pages 2007-2025.
  3. Agostino, Mariarosaria & Gagliardi, Francesca & Trivieri, Francesco, 2010. "Credit market structure and bank screening: An indirect test on Italian data," Review of Financial Economics, Elsevier, vol. 19(4), pages 151-160, October.
  4. Giacomo Cau & Massimiliano Stacchini, 2010. "The certification role of bank directors on;corporate boards," Mo.Fi.R. Working Papers 46, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  5. Diana Bonfim & Daniel Dias & Christine Richmond, 2011. "What Happens After Default? Stylized Facts on Access to Credit," Working Papers w201101, Banco de Portugal, Economics and Research Department.
  6. Enrico Beretta & Silvia Del Prete, 2013. "Banking consolidation and bank-firm credit relationships: the role of geographical features and relationship characteristics," Temi di discussione (Economic working papers) 901, Bank of Italy, Economic Research and International Relations Area.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_645_07. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ().

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.