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The Optimal Concentration of Creditors

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Author Info
Ivo Welch (Yale School of Management)
Bris, Arturo (Yale School of Management)

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Abstract

There are situations in which dispersed creditors (e.g., public creditors) have more difficulties and higher costs when collecting their claims in financial distress than concentrated creditors (e.g., banks). Under this assumption, our model predicts that measures of debt concentration relate [a] positively to creditors' chosen aggregate debt collection expenditures; [b] positively to management's chosen expenditures to avoid paying; [c] positively to total net litigation costs/waste in financial distress; and [d] positively to accomplished claim recovery by creditors (to which we present some preliminary favorable empirical evidence). Under additional assumptions, measures of debt concentration relate [e] positively to intrinsic firm quality; [f] positively to creditor monitoring and negatively to managerial waste; [g] positively to optimal continuation/discontinuation choices; [h] negatively to issuing marketing expenses. In a signaling model, when concentration alone is not a sufficient signal, firms choose the ultimately concentrated debt (i.e., a house bank) and have to pay a high interest.

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File URL: http://cowles.econ.yale.edu/P/cd/d13a/d1338.pdf
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Paper provided by Cowles Foundation, Yale University in its series Cowles Foundation Discussion Papers with number 1338.

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Length: 43 pages
Date of creation: Dec 2001
Date of revision: Jan 2002
Handle: RePEc:cwl:cwldpp:1338

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Keywords: Banking; Capital Structure;

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Find related papers by JEL classification:
G2 - Financial Economics - - Financial Institutions and Services
G3 - Financial Economics - - Corporate Finance and Governance

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References listed on IDEAS
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Ongena, Steven & Tümer-Alkan, Günseli & Westernhagen, Natalja von, 2007. "Creditor concentration: an empirical investigation," Discussion Paper Series 2: Banking and Financial Studies 2007,15, Deutsche Bundesbank, Research Centre. [Downloadable!]
  2. Kazuo Ogawa & Elmer Sterken & Ichiro Tokutsu, 2005. "Bank Control and the Number of Bank Relations of Japanese Firms," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
  3. Christophe J. Godlewski & Ydriss Ziane, 2008. "How many banks does it take to lend? Empirical evidence from Europe," Working Papers of LaRGE (Laboratoire de Recherche en Gestion et Economie) 2008-11, Laboratoire de Recherche en Gestion et Economie, Université de Strasbourg (France). [Downloadable!]
  4. Guiso, Luigi & Minetti, Raoul, 2004. "Multiple Creditors and Information Rights: Theory and Evidence from US Firms," CEPR Discussion Papers 4278, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  5. José Wynne & Federico Weinschelbaum, 2004. "Renegotiation, Collective Action Clauses and Sovereign Debt Markets," Econometric Society 2004 Latin American Meetings 153, Econometric Society. [Downloadable!]
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  6. 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. [Downloadable!]
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  7. Diana Marina Del COlle, & Paolo Finaldi Russo & Andrea Generale, 2006. "The Causes and Consequences of Venture Capital Financing. An Analysis based on a Sample of Italian Firms," Temi di discussione (Economic working papers) 584, Bank of Italy, Economic Research Department. [Downloadable!]
  8. Luigi Guiso & Raoul Minetti, 2007. "The Structure of Multiple Credit Relationships: Evidence from US Firms," Economics Working Papers ECO2007/46, European University Institute. [Downloadable!]
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