Working Paper: NBER ID: w8652
Authors: Arturo Bris; Ivo Welch
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: No keywords provided
JEL Codes: G20; G33; G21; G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Creditor Concentration (G32) | Aggregate Debt Collection Expenditures (H63) |
| Creditor Concentration (G32) | Management's Avoidance Expenditures (D25) |
| Creditor Concentration (G32) | Total Litigation Costs (K41) |
| Creditor Concentration (G32) | Claim Recovery (Y60) |
| Creditor Concentration (G32) | Intrinsic Firm Quality (L15) |
| Creditor Concentration (G32) | Marketing Expenses Related to Issuing Debt (G24) |