Abstract
This paper develops a banking model to examine the conventional view that the main bank makes restructuring decisions efficiently since it holds significant blocks of both equities and loans to its client firm in financial distress. The paper shows that the efficiency of restructuring decisions depends upon the structure of the main bank's financial claims to the firm as well as the capital structure and the debt structure of the firm. It is also shown that seniority, renegotiability, and the maturity structure of the main bank's debt claim to the firm affect the
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