A Main Bank Approach to Optimal Financial Contracting

M.A. Garcia and Josep A. Tribó

UFAE and IAE Working Papers from Unitat de Fonaments de l'Anàlisi Econòmica (UAB) and Institut d'Anàlisi Econòmica (CSIC)

Abstract: This paper analyses the costs and benefits of using a Main Bank (MB) as a financial provider, which is so common in countries such as Japan. Several banks lend resources to a particular firm but only one monitors and remains responsible to other participants. These inside banks act as fund providers for the project but exchange roles by the time other projects are considered. We show how, depending on firms quality and the banks skills to monitor, an MB-contract outperforms other arrangements. These conditions, are shown not to be idyosincratic of the Japan marketplace.

Keywords: BANKS; CORPORATIONS; CONTRACTS (search for similar items in EconPapers)
JEL-codes: D21 G21 G30 G32 (search for similar items in EconPapers)
Date: 1997

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Persistent link: http://EconPapers.repec.org/RePEc:aub:autbar:387.97

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