The Informative Contents of Bank Debt Concentration

Abstract

This paper deals with the concentration of corporate bank debt. In an economy with asymmetric information, we show that the bank debt concentration with a main bank possessing informational monopoly is a reliable signal of the firm's quality for the secondary banks. Precisely, the firm's choice of the parts lent by the main bank and the secondary banks allows use of the main bank's market power to signal its quality to the secondary banks. We establish a positive relationship between the amount lent by the main bank and the firm's quality.

JEL Classification: G21, G32