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

  • LUIGI GUISO
  • RAOUL MINETTI

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
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  17. Alessandro Penati & Luigi Zingales, 1997. "Efficiency and Distribution in Financial Restructuring: The Case of the Ferruzzi Group," CRSP working papers 466, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
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