Multiple But Asymmetric Bank Financing: The Case of Relationship Lending

Heinemann, Frank; Elsas, Ralf and Tyrell, Marcel (2004): Multiple But Asymmetric Bank Financing: The Case of Relationship Lending. SSRN

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 los expected cash-flows or high asset specificity prefer asymmetric financing, while firms with high expected cash-flow or high asset specificity tend to finance without relationship bank.

• Item Type: Paper
• Keywords: relationship lending, multiple bank financing, lender coordination
• Faculties: Munich School of Management > Institute for Finance and Banking
• Subjects: 300 Social sciences > 330 Economics
• ISSN: 1556-5068
• Language: English