Multiple-bank lending : diversification and free-riding in monitoring

  • 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. JEL Klassifikation: D82; G21; G32.

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Author:Elena CarlettiGND, Vittoria Cerasi, Sonja Daltung
Parent Title (German):Center for Financial Studies (Frankfurt am Main): CFS working paper series ; No. 2004,18
Series (Serial Number):CFS working paper series (2004, 18)
Document Type:Working Paper
Year of Completion:2004
Year of first Publication:2004
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2005/06/13
Tag:diversification; free-riding problem; individual-bank lending; monitoring; multiple-bank lending
GND Keyword:Kreditgeschäft; Unternehmenskooperation; Kreditrisiko; Portfoliomanagement; Kreditwürdigkeit; Trittbrettfahrerverhalten
Issue:June 1, 2004
Institutes:Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Licence (German):License LogoDeutsches Urheberrecht