TY  - JOUR
AU  - Bris,Arturo
AU  - Welch,Ivo
TI  - The Optimal Concentration of Creditors
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 8652
PY  - 2001
Y2  - December 2001
UR  - http://www.nber.org/papers/w8652
L1  - http://www.nber.org/papers/w8652.pdf
N1  - Author contact info:
Arturo Bris
IMD
Chemin de Bellerive 28
Lausanne
1001 Switzerland
Tel: (41)216180667
Fax: (41)216180707
E-Mail: arturo.bris@imd.ch

Ivo Welch
Anderson School at UCLA (C519)
110 Westwood Place (951481)
Los Angeles, CA 90095-1482
E-Mail: ivo.welch@anderson.ucla.edu
AB  - 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.
ER  -