Journal Article

Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring

Antje Brunner and Jan Pieter Krahnen

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 75, issue 2, pages 415-442
Published in print April 2008 | ISSN: 0034-6527
Published online April 2008 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/j.1467-937X.2008.00483.x
Multiple Lenders and Corporate Distress: Evidence on Debt Restructuring

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  • Firm Objectives, Organization, and Behaviour
  • Banking
  • Corporate Governance

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Multiple banking is a common characteristic of the corporate lending, particularly of medium-sized and large firms. However, if the firms are facing distress, multiple lenders may have serious coordination problems, as has been argued in the theoretical literature. In this paper we analyse the problems of multiple banking in borrower distress empirically. We rely on a unique panel data set that includes detailed credit-file information on distressed lending relationships in Germany. In particular, it includes information on “bank pools”, a legal institution aimed at coordinating lender interests in distress. We find that the existence of small pools increases the probability of workout success and that this effect reverses when pools become large. We identify major determinants of pool formation, in particular the number of banks, the distribution of lending among banks, and the severity of the distress.

Keywords: G21; G32; L25

Journal Article.  12274 words.  Illustrated.

Subjects: Firm Objectives, Organization, and Behaviour ; Banking ; Corporate Governance

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