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Better borrowers, fewer banks?

Listed author(s):
  • Christophe J. Godlewski


    (LaRGE Research Center, Université de Strasbourg)

  • Frédéric Lobez


    (European Center for Corporate Control Studies, Université de Lille Nord de France)

  • Jean-Christophe Statnik


    (European Center for Corporate Control Studies, Université de Lille Nord de France
    GREGOR, Sorbonne Graduate Business School, Université Paris 1)

We investigate the relationship between borrower quality and the structure of the pool of banks. First, we develop a theoretical model where the size of the banking pool is a credible signal of firm quality. We argue that better borrowers seek to disclose their quality in a credible way through the structure of the banking pool involving fewer banks. Second, we test our prediction using a sample of more than 3,000 loans from 19 European countries. We perform regressions of the number of bank lenders on various proxies of borrower quality. Our empirical tests corroborate the theoretical redictions. The size of the banking pool is a signal of borrower quality. Hence, good quality firms have fewer lenders in their banking pools.

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Paper provided by Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg in its series Working Papers of LaRGE Research Center with number 2010-02.

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Date of creation: 2010
Handle: RePEc:lar:wpaper:2010-02
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