Heterogeneous Multiple Bank Financing Under Uncertainty: Does it Reduce Inefficient Credit Decisions?

Christina E. Bannier ()

No 149, Working Paper Series: Finance and Accounting from Department of Finance, Goethe University Frankfurt am Main

Abstract: Small 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.

JEL-codes: D82 G21 L14 (search for similar items in EconPapers)
Date: 2005-03
New Economics Papers: this item is included in nep-fin and nep-pke
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