Premium
The Structure of Multiple Credit Relationships: Evidence from U.S. Firms
Author(s) -
GUISO LUIGI,
MINETTI RAOUL
Publication year - 2010
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/j.1538-4616.2010.00319.x
Subject(s) - creditor , restructuring , homogeneous , transparency (behavior) , business , sample (material) , monetary economics , financial system , economics , finance , debt , chemistry , physics , chromatography , political science , law , thermodynamics
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 and more homogeneous assets differentiate borrowing more sharply across concentrated creditors. Moreover, borrowing differentiation is inversely related to restructuring costs and positively related to firms' informational transparency. The results suggest that the structure of credit relationships is used to discipline creditors and entrepreneurs, especially during corporate reorganizations.