MULTIPLE BANKING AS A COMMITMENT NOT TO RESCUE

We show why investors may prefer not to be a firm’s unique lender, even if they are in a strong bargaining position. Some firms need additional funds after a first investment: providing additional funds is rational after the first investment is sunk, but together the two investments are unprofitable. A unique lender will always provide additional funds and make losses. Two creditors can commit not always to provide funds: inefficient negotiations over debt forgiveness may end with a project’s liquidation, which is harmful ex post, but helpful ex ante, if it keeps entrepreneurs with nonpromising projects from initially requesting funds.

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Year of publication:	2005
Authors:	Povel, Paul
Published in:	Research in finance : Vol. 21. - Bingley, U.K : Emerald, ISBN 978-1-84950-313-6. - 2005, p. 175-199
Subject:	Theorie \| Theory \| Bank \| Insolvenz \| Insolvency \| Refinanzierung \| Refinancing

Type of publication:	Article
Language:	English
Other identifiers:	10.1016/S0196-3821(04)21008-5 [DOI]
Source:	ECONIS - Online Catalogue of the ZBW

Persistent link: https://www.econbiz.de/10015387343