Article ID Journal Published Year Pages File Type
961128 Journal of Financial Intermediation 2007 27 Pages PDF
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 have lower equity, 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.
Related Topics
Social Sciences and Humanities Business, Management and Accounting Strategy and Management
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