The paper analyses the effect of multiple lending relationships on the bank-debt restructuring of financially distressed firms. From a theoretical viewpoint, we study the interaction among banks lending to firms and the incentive for banks to cooperate. Empirically, we estimate the impact of multiple bank relationships on the likelihood of restructuring by using a sample of firms that had difficulty repaying their debts and adopting various statistical methodologies.
Multiple bank relationships make it difficult to restructure the bank debt of firms in financial distress but still economically viable, due to coordination problems among lending banks. Estimates show that, if more than three banks are involved, the likelihood of debt restructuring is reduced; this is more likely when bank debt prevails over other sources of external debt, firms are larger and characterized by a better economic and financial situation before the distress event.
