Multiple Bank Lending and Seniority in Claims

MDI Working Paper

33 Pages Posted: 17 Sep 2002

See all articles by Shubhashis Gangopadhyay

Shubhashis Gangopadhyay

India Development Foundation; University of Gothenburg; University of Groningen, Faculty of Economics and Business, Students; Indian School of Public Policy

Bappaditya Mukhopadhyay

Great Lakes Institute of Management

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Abstract

In this paper, we study why multiple banks lend to the same project even though they are not constrained by the availability of funds. The choice of the amount of debt, as well as the hierarchy of debt claim is endogenized. We find that the hierarchy among the creditors is exclusively determined by their monitoring costs. We identify conditions under which group lending is efficient. We also establish a possible rationale behind the observed phenomenon where a system of consortium lending is increasingly being replaced by syndicated lending.

Keywords: Multiple bank lending, Seniority of claims, Endogenous debt

JEL Classification: G21, G32

Suggested Citation

Gangopadhyay, Shubhashis and Mukhopadhyay, Bappaditya, Multiple Bank Lending and Seniority in Claims. MDI Working Paper, Available at SSRN: https://ssrn.com/abstract=330680 or http://dx.doi.org/10.2139/ssrn.330680

Shubhashis Gangopadhyay

India Development Foundation ( email )

4101 DLF Phase IV
Gurugram, Haryana 122002
India
+91 9910991221 (Phone)

University of Gothenburg

Gothenburg
Sweden

University of Groningen, Faculty of Economics and Business, Students

Postbus 72
9700 AB Groningen
Netherlands

Indian School of Public Policy

Delhi
India

Bappaditya Mukhopadhyay (Contact Author)

Great Lakes Institute of Management ( email )

815, Udyog Vihar
Phase V
Gurgaon, 122001
India

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