English, Article, Journal or magazine article edition: Multiple-bank lending: diversification and free-riding in monitoring Elena Carletti; Vittoria Cerasi; Sonja Daltung

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Bookmark: http://trove.nla.gov.au/version/44923
Physical Description
  • preprint
Language
  • English

Edition details

Title
  • Multiple-bank lending: diversification and free-riding in monitoring
Author
  • Elena Carletti
  • Vittoria Cerasi
  • Sonja Daltung
Physical Description
  • preprint
Notes
  • RePEc:fmg:fmgdps:dp490
  • This paper analyzes the optimality of multiple-bank lending, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending leads to higher per-project monitoring whenever the benefit of greater diversification dominates the costs of free-riding and duplication of effort. The model predicts a greater use of multiple-bank lending when banks are highly leveraged, firms are less profitable and monitoring costs are high. These results are consistent with some empirical observations concerning the use of multiple-bank lending in small and medium business lending.
  • multiple monitors, diversification, free-riding problem, multiple-bank lending.
  • RePEc:mis:wpaper:20061103
  • This paper analyzes banks’ choice between lending to firms individually and sharing lending with other banks, when firms and banks are subject to moral hazard and monitoring is essential. Multiple-bank lending is optimal whenever the benefit of greater diversification in terms of higher monitoring dominates the costs of free-riding and duplication of efforts. The model predicts a greater use of multiple-bank lending when banks are small relative to investment projects, firms are less profitable, and poor financial integration, regulation and inefficient judicial systems increase monitoring costs. These results are consistent with empirical observations concerning small business lending and loan syndication.
  • individual-bank lending, multiple-bank lending, monitoring, diversification, free-riding problem
  • RePEc:cfs:cfswop:wp200418
Language
  • English
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