The Structure of Multiple Credit Relationships: Evidence from U.S. Firms


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    Throughout the analysis, we use the term “bank” to mean any concentrated lender or financial institution.

  • We wish to thank two anonymous referees and the editor, Deborah Lucas, for their comments. We also thank seminar participants at the London School of Economics, Michigan State University, and Tilburg University for helpful comments and discussions. All remaining errors are ours.


When firms borrow from multiple concentrated creditors such as banks they appear to differentiate their allocation of borrowing. In this paper, we put forward hypotheses for this borrowing pattern based on incomplete contract theories and test them using a sample of small U.S. firms. We find that firms with more valuable and more homogeneous assets differentiate borrowing more sharply across concentrated creditors. Moreover, borrowing differentiation is inversely related to restructuring costs and positively related to firms' informational transparency. The results suggest that the structure of credit relationships is used to discipline creditors and entrepreneurs, especially during corporate reorganizations.