Multiple but Asymmetric Bank Financing: The Case of Relationship Lending
AbstractEmpirical evidence suggests that even those firms presumably most in need of monitoring-intensive financing (young, small, and innovative firms) have a multitude of bank lenders, where one may be special in the sense of relationship lending. However, theory does not tell us a lot about the economic rationale for relationship lending in the context of multiple bank financing.To fill this gap, we analyze the optimal debt structure in a model that allows for multiple but asymmetric bank financing. The optimal debt structure balances the risk of lender coordination failure from multiple lending and the bargaining power of a pivotal relationship bank. We show that firms with low expected cash-flows or low interim liquidation values of assets prefer asymmetric financing, while firms with high expected cash-flow or high interim liquidation values of assets tend to finance without a relationship bank.
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Bibliographic InfoPaper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 1251.
Date of creation: 2004
Date of revision:
relationship lending; multiple bank financing; lender coordination;
Other versions of this item:
- Ralf Elsas & Frank Heinemann & Marcel Tyrell, 2004. "Multiple but Asymmetric Bank Financing: The Case of Relationship Lending," Working Paper Series: Finance and Accounting 141, Department of Finance, Goethe University Frankfurt am Main.
- NEP-ALL-2004-08-31 (All new papers)
- NEP-ENT-2004-08-31 (Entrepreneurship)
- NEP-MFD-2004-08-31 (Microfinance)
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