The Structure of Multiple Credit Relationships: Evidence from US Firms

No ECO2007/46, Economics Working Papers from European University Institute

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, more redeployable, and more homogeneous assets differentiate borrowing more sharply across their concentrated creditors. We also find that borrowing differentiation is inversely related to restructuring costs and positively related to firms’ informational transparency. This evidence supports the predictions of incomplete contract theories: the structure of credit relationships appears to be used as a device to discipline creditors and entrepreneurs, especially during corporate reorganizations.

Keywords: Credit Relationships; Multiple Creditors; Borrowing Allocation (search for similar items in EconPapers)
JEL-codes: G21 G33 G34 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn, nep-ent and nep-fmk
Date: Written 2007
View list of references View citations in EconPapers

Downloads: (external link)
http://cadmus.iue.it/dspace/bitstream/1814/7500/1/ECO-2007-46.pdf main text

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Access Statistics for this paper

More papers in Economics Working Papers from European University Institute
Address: Badia Fiesolana, Via dei Roccettini, 9, 50016 San Domenico di Fiesole (FI) Italy
Contact information at EDIRC.
Series data maintained by Marcia Gastaldo ().