Multiple but Asymmetric Bank Financing: The Case of Relationship Lending

Ralf Elsas, Frank Heinemann and Marcel Tyrell

No 1251, CESifo Working Paper Series from CESifo

Abstract: Empirical evidence suggests that even those firms presumably most in need of monitoring-intensive financing (young, small, and innovative firms) have a multitude of bank lenders, where one may be special in the sense of relationship lending. However, theory does not tell us a lot about the economic rationale for relationship lending in the context of multiple bank financing. To fill this gap, we analyze the optimal debt structure in a model that allows for multiple but asymmetric bank financing. The optimal debt structure balances the risk of lender coordination failure from multiple lending and the bargaining power of a pivotal relationship bank. We show that firms with low expected cash-flows or low interim liquidation values of assets prefer asymmetric financing, while firms with high expected cash-flow or high interim liquidation values of assets tend to finance without a relationship bank.

Keywords: relationship lending; multiple bank financing; lender coordination (search for similar items in EconPapers)
Date: 2004
New Economics Papers: this item is included in nep-ent and nep-mfd
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (39)

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Working Paper: Multiple but Asymmetric Bank Financing: The Case of Relationship Lending (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_1251

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