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The Structure of Multiple Credit Relationships: Evidence from US Firms

Luigi Guiso () and Raoul Minetti

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: 2007
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Journal Article: The Structure of Multiple Credit Relationships: Evidence from U.S. Firms (2010) Downloads
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