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The Structure of Multiple Credit Relationships: Evidence from U.S. Firms

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Listed author(s):
  • LUIGI GUISO
  • RAOUL MINETTI

Abstract

When firms borrow from multiple concentrated creditors such as banks they appear to differentiate their allocation of borrowing. In this paper, we put forward hypotheses for this borrowing pattern based on incomplete contract theories and test them using a sample of small U.S. firms. We find that firms with more valuable and more homogeneous assets differentiate borrowing more sharply across concentrated creditors. Moreover, borrowing differentiation is inversely related to restructuring costs and positively related to firms' informational transparency. The results suggest that the structure of credit relationships is used to discipline creditors and entrepreneurs, especially during corporate reorganizations. Copyright (c) 2010 The Ohio State University.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1538-4616.2010.00319.x
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Article provided by Blackwell Publishing in its journal Journal of Money, Credit and Banking.

Volume (Year): 42 (2010)
Issue (Month): 6 (09)
Pages: 1037-1071

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Handle: RePEc:mcb:jmoncb:v:42:y:2010:i:6:p:1037-1071
Contact details of provider: Web page: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879

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Find related papers by JEL classification:
  • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
  • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
  • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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