The Optimal Concentration of Creditors

Arturo Bris and Ivo Welch

No 8652, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: There are situations in which dispersed creditors (e.g., public creditors) have more difficulties and higher costs when collecting their claims in financial distress than concentrated creditors (e.g., banks). Under this assumption, our model predicts that measures of debt concentration relate [a] positively to creditors' chosen aggregate debt collection expenditures; [b] positively to management's chosen expenditures to avoid paying; [c] positively to total net litigation costs/waste in financial distress; and [d] positively to accomplished claim recovery by creditors (to which we present some preliminary favorable empirical evidence). Under additional assumptions, measures of debt concentration relate [e] positively to intrinsic firm quality; [f] positively to creditor monitoring and negatively to managerial waste; [g] positively to optimal continuation/discontinuation choices; [h] negatively to issuing marketing expenses. In a signaling model, when concentration alone is not a sufficient signal, firms choose the ultimately concentrated debt (i.e., a house bank) and have to pay a high interest.

JEL-codes: G20 G33 (search for similar items in EconPapers)
Date: 2001-12
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

Published as Bris, Arturo and Ivo Welch. "The Optimal Concentration Of Creditors," Journal of Finance, 2005, v60(5,Oct), 2193-2212.

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Related works:
Journal Article: The Optimal Concentration of Creditors (2005)
Working Paper: The Optimal Concentration of Creditors (2004)
Working Paper: The Optimal Concentration of Creditors (2004)
Working Paper: The Optimal Concentration of Creditors (2002)
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