Is There a Hold-Up Benefit in Heterogeneous Multiple Bank Financing?

Journal of Institutional and Theoretical Economics, Forthcoming

42 Pages Posted: 13 Sep 2007 Last revised: 3 Mar 2010

Date Written: March 2, 2009

Abstract

This paper studies the effects that heterogeneous multiple bank financing has on a firm's risk- and information-policy, particularly with respect to credit renegotiation efficiency. We find that a significant, yet limited, degree of relationship lending enables firms with high asset specificity to credibly signal their desire to abstain from strategic default. This allows the firm's policy to eliminate the risk of inefficient liquidation even in the case of bleak cash-flow expectations. This "hold-up benefit" comes at a cost, though: firms with low asset specificity cannot always eliminate the risk of coordination failure by their banks.

Keywords: Relationship banking, hold-up cost, asymmetric information, strategic default, liquidity crisis, global games

JEL Classification: D82, G21, L14, M41

Suggested Citation

Bannier, Christina E., Is There a Hold-Up Benefit in Heterogeneous Multiple Bank Financing? (March 2, 2009). Journal of Institutional and Theoretical Economics, Forthcoming, Available at SSRN: https://ssrn.com/abstract=1014308 or http://dx.doi.org/10.2139/ssrn.1014308

Christina E. Bannier (Contact Author)

Justus-Liebig-University Giessen ( email )

Licher Str. 62
Gießen, 35394
Germany
+49 641 99 22551 (Phone)

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