MULTIPLE BANKING RELATIONSHIPS AND THE FRAGILITY OF CORPORATE BORROWERS

The widespread Italian practice of multiple borrowing has been studied with respect to the continuity of bank lending and to the interest ra tes charged to individual borrowers. However, there is a lack of empir ical evidence on the effects of multiple credit relationships over the fragility of the corporate borrowers. Two theses are competing: one a sserts that multiple borrowing results in a desirable sharing of risks ; the other, that the parcellization of loans substantially weakens th e discipline exercised by the banks and makes corporate borrowers more fragile. Through multivariate techniques, we check whether the indica tors describing the structure of lending relationships can help, along with balance-sheet variables, to separate healthy from failed firms. This exercise shows that multiple banking relationships are associated with a higher riskiness of the borrowers, even though the impact is m oderate in comparison with the importance of real and financial variab les derived from balance sheets. (C) 1998 Published by Elsevier Scienc e B.V. All rights reserved.