DP4278 Multiple Creditors and Information Rights: Theory and Evidence from US Firms

Author(s): Luigi Guiso , Raoul Minetti

Publication Date: March 2004

Keyword(s): bank relationships , multiple banking , firms financing

JEL(s): G21 , G33 , G34

Programme Areas: Financial Economics

Link to this Page: www.cepr.org/pubs/dps/DP4278.asp

We analyse how a firm allocates information rights across its multiple banks. By differentiating information disclosed, a firm prevents its banks from continuing projects (possibly unsound) solely in order to use their superior information and seize assets during the reorganization. Informational diversity can also lead to the premature liquidation of sound projects, however. We derive the optimal allocation of information as a function of the redeployability and the heterogeneity of the firm’s assets, and of the costs of restructuring the firm in distress. Using a sample of US firms, we find evidence that supports the empirical predictions of the model.