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: Suggested Citation
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