Heterogeneous Multiple Bank Financing Under Uncertainty: Does it Reduce Inefficient Credit Decisions?
AbstractSmall and medium-sized firms often obtain capital via a mixture of relationship and arm's-length bank lending. This paper explores the reasons for the dominance of such heterogeneous multiple bank financing. We show that the incidence of inefficient credit termination decreases in the relationship bank's information precision for firms with low expected cash-flows, but increases for firms with high expected profits. Generally, however, heterogeneous multiple bank financing leads to fewer inefficient credit decisions than both monopoly relationship lending and homogeneous multiple bank financing, provided that the relationship bank's fraction of total firm debt is not too large.
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Bibliographic InfoPaper provided by Department of Finance, Goethe University Frankfurt am Main in its series Working Paper Series: Finance and Accounting with number 149.
Date of creation: Mar 2005
Date of revision:
Find related papers by JEL classification:
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
- L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
- D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-04-24 (All new papers)
- NEP-FIN-2005-04-24 (Finance)
- NEP-PKE-2005-04-24 (Post Keynesian Economics)
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