Multiple Creditors and Information Rights: Theory and Evidence from US Firms

Abstract:     
We analyse how a firm allocates information rights across its multiple banks. By differentiating information disclosed, a firm prevents its banks from continuing projects (possibly unsound) solely in order to use their superior information and seize assets during the reorganization. Informational diversity can also lead to the premature liquidation of sound projects, however. We derive the optimal allocation of information as a function of the redeployability and the heterogeneity of the firm's assets, and of the costs of restructuring the firm in distress. Using a sample of US firms, we find evidence that supports the empirical predictions of the model.

Number of Pages in PDF File: 35

Keywords: Bank relationships, multiple banking, firms financing

JEL Classification: G21, G33, G34

working papers series