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The Optimal Concentration of Creditors
The Optimal Concentration of Creditors
- Source :
- The Journal of Finance. 60:2193-2212
- Publication Year :
- 2005
- Publisher :
- Wiley, 2005.
-
Abstract
- Our model assumes that creditors need to expend resources to collect on claims. Consequently, because diffuse creditors suffer from mutual free-riding (Holmstrom (1982)), they fare worse than concentrated creditors (e.g., a house bank). The model predicts that measures of debt concentration relate positively to creditors’ (aggregate) debt collection expenditures and positively to management’s chosen expenditures to resist paying. However, collection activity is purely redistributive, so social waste is larger when creditors are concentrated. If borrower quality is not known, the best firms choose the most concentrated creditors and pay higher expected yields. COORDINATION FAILURE AMONG MULTIPLE CLAIMANTS ,b ethey creditors or owners, is a subject well studied in the academic literature. Such coordination failure can lead to takeover failures (Grossman and Hart (1980)) or bank-runs (e.g., Diamond and Dybvig (1983), Morris and Shin (1999)), or can generally reduce the probability of successful renegotiation to a proposed reorganization plan when renegotiation requires simultaneous assent by many claimants (e.g., �
Details
- ISSN :
- 00221082
- Volume :
- 60
- Database :
- OpenAIRE
- Journal :
- The Journal of Finance
- Accession number :
- edsair.doi.dedup.....daca113e0383362ee3c5cd8390c66cb2
- Full Text :
- https://doi.org/10.1111/j.1540-6261.2005.00796.x