Multiple Creditors and Information Rights: Theory and Evidence from US Firms
Einaudi Institute for Economics and Finance (EIEF); Centre for Economic Policy Research (CEPR)
Michigan State University - Department of Economics
CEPR Discussion Paper No. 4278
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, G34working papers series
Date posted: April 5, 2004
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