We develop a theoretical model in which firms may choose multiple banking relationships to reduce the risk that financing will be denied by "relationship banks" should the latter experience liquidity problems and refuse to roll over lines of credit. The inability to refinance from relationship...

This paper develops a theoretical model in which firms may choose multiple banking relationships to reduce the risk that financing will be denied by ‘relationship banks’ should the latter experience liquidity problems and refuse to roll over lines of credit. The inability to refinance from...

A theory of the optimal number of banking relationships is developed and tested using matched bank-firm data. According to the theory, relationship banks may be unable to continue funding profitable projects owing to internal problems and a firm may thus have to refinance from nonrelationship...