Carletti, Elena, Cerasi, Vittoria and Daltung, Sonja (2004) Multiple-bank lending: diversification and free-riding in monitoring. Financial Markets Group Discussion Papers (490). Financial Markets Group, The London School of Economics and Political Science, London, UK.
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Abstract
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.
| Item Type: | Monograph (Discussion Paper) |
|---|---|
| Official URL: | http://fmg.ac.uk |
| Additional Information: | © 2004 The Authors |
| Divisions: | Financial Markets Group |
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HB Economic Theory |
| JEL classification: | G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure |
| Date Deposited: | 05 Aug 2009 10:13 |
| Last Modified: | 11 Dec 2024 18:38 |
| URI: | http://eprints.lse.ac.uk/id/eprint/24702 |
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