Working Paper: CEPR ID: DP4278
Authors: Luigi Guiso; Raoul Minetti
Abstract: 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.
Keywords: bank relationships; firms; financing; multiple banking
JEL Codes: G21; G33; G34
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| More valuable assets (G19) | More differentiated information rights (L15) |
| More differentiated information rights (L15) | Discourages banks from continuing with unsound projects (G21) |
| High-value assets (G32) | Less differentiated information rights when heterogeneous asset redeployability and high restructuring costs (L15) |
| Heterogeneous asset redeployability and high restructuring costs (D29) | Less differentiated information rights (L15) |