Creditor Concentration: An Empirical Investigation

Abstract

Most of the literature addressing multiple banking assumes equal financing shares. However, unequal, concentrated or asymmetric bank borrowing is widespread. This paper investigates the determinants of creditor concentration for German firms using a comprehensive bank-firm level dataset for the time period between 1993 and 2003. We document that lending is very often concentrated and, consequently, that relationship lending is important, not only for the small firms but also for the larger firms in our sample. However, we also find that risky, illiquid, large and leveraged firms spread their borrowing more evenly between multiple lenders. On the other hand, the degree of concentration increases with the profitability of the relationship lender. Relationship lending may spur financing provided by other banks, especially if the relationship lender is a public sector bank and if the other banks are large or do not have to tie up additional funds in capital.

Who monitors opaque borrowers? Debt specialisation, institutional ownership, and information opacity

“…Using firm‐borrower data for German firms, Ongena et al . () indicate that firms with high monitoring costs have more concentrated borrowing, consistent with Bris and Welch ().…”

Informal or Formal Financing? Or Both? First Evidence on the Co-Funding of Chinese Firms

“…9 Multiple creditor relationships, however, can increase a firm's debt capacity (von Thadden, Berglof and Roland, 2010), and more valuable firms may prefer to limit the number of creditors to discipline them (Bris and Welch, 2005;Guiso and Minetti, 2010). Moreover, it may be better for the borrowing firm to deal with a relationship lender that has lower monitoring costs or operates in a concentrated regional lending market (Ongena, Tümer-Alkan and von Westernhagen, 2012). However, the benefits from limiting the number of creditors, i.e.…”

Asymmetry Information and Diversification Effect on Loan Pricing in Asia Pacific Region 2006-2010

“…and Ongena, Alkan, and Westernhagen (2007) adds that the addition of the lead share is an effective indicator to reduce adverse selection and moral hazard problems in syndicated loans, so the data is expected to show a negative relationship between the lead share and spread. At point B (Fig.…”