The Optimal Concentration of Creditors

Ivo Welch and Arturo Bris
Additional contact information
Arturo Bris: Yale School of Management

No 1338, Cowles Foundation Discussion Papers from Cowles Foundation for Research in Economics, Yale University

Abstract: There are situations in which dispersed creditors (e.g., public creditors) have more difficulties and higher costs when collecting their claims in financial distress than concentrated creditors (e.g., banks). Under this assumption, our model predicts that measures of debt concentration relate [a] positively to creditors' chosen aggregate debt collection expenditures; [b] positively to management's chosen expenditures to avoid paying; [c] positively to total net litigation costs/waste in financial distress; and [d] positively to accomplished claim recovery by creditors (to which we present some preliminary favorable empirical evidence). Under additional assumptions, measures of debt concentration relate [e] positively to intrinsic firm quality; [f] positively to creditor monitoring and negatively to managerial waste; [g] positively to optimal continuation/discontinuation choices; [h] negatively to issuing marketing expenses. In a signaling model, when concentration alone is not a sufficient signal, firms choose the ultimately concentrated debt (i.e., a house bank) and have to pay a high interest.

Keywords: Banking; Capital Structure (search for similar items in EconPapers)
JEL-codes: G2 G3 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2001-12, Revised 2002-01
New Economics Papers: this item is included in nep-ent and nep-net
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Citations: View citations in EconPapers (3)

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Related works:
Journal Article: The Optimal Concentration of Creditors (2005)
Working Paper: The Optimal Concentration of Creditors (2004)
Working Paper: The Optimal Concentration of Creditors (2004)
Working Paper: The Optimal Concentration of Creditors (2001)
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