Multiple-bank lending: diversification and free-riding in monitoring

Elena Carletti, Vittoria Cerasi () and Sonja Daltung

No 20061103, Working Papers from Università degli Studi di Milano-Bicocca, Dipartimento di Statistica

Abstract: This paper analyzes the optimality of multiple-bank lending, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending leads to higher per-project monitoring whenever the benefit of greater diversification dominates the costs of free-riding and duplication of effort. The model predicts a greater use of multiple-bank lending when banks are highly leveraged, firms are less profitable and monitoring costs are high. These results are consistent with some empirical observations concerning the use of multiple-bank lending in small and medium business lending.

Keywords: multiple monitors; diversification; free-riding problem; multiple-bank lending. (search for similar items in EconPapers)
JEL-codes: D82 G21 G32 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-ppm
Date: 2006-07, Revised 2006-11
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http://www.statistica.unimib.it/utenti/WorkingPapers/WorkingPapers/20061103.pdf Revised version, 8 November 2006 (application/pdf)

Related works:
Journal Article: Multiple-bank lending: Diversification and free-riding in monitoring (2007)
Working Paper: Multiple-bank lending: diversification and free-riding in monitoring (2004)
Working Paper: Multiple-bank lending: diversification and free-riding in monitoring (2004)
Working Paper: Multiple-Bank Lending: Diversification and Free-Riding in Monitoring (2004)
Working Paper: Multiple-bank lending: diversification and free-riding in monitoring (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:mis:wpaper:20061103

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