There are situations in which dispersed creditors (e.g., public creditors) have more diﬀiculties and higher costs when collecting their claims in ﬁnancial distress than concentrated creditors (e.g., banks). Under this assumption, our model predicts that measures of debt concentration relate [a] positively to creditors’ chosen aggregate debt collection expenditures; [b] positively to management’s chosen expenditures to avoid paying; [c] positively to total net litigation costs/waste in ﬁnancial distress; and [d] positively to accomplished claim recovery by creditors (to which we present some preliminary favorable empirical evidence). Under additional assumptions, measures of debt concentration relate [e] positively to intrinsic ﬁrm quality; [f] positively to creditor monitoring and negatively to managerial waste; [g] positively to optimal continuation/discontinuation choices; [h] negatively to issuing marketing expenses. In a signaling model, when concentration alone is not a suﬀicient signal, ﬁrms choose the ultimately concentrated debt (i.e., a house bank) and have to pay a high interest.
Welch, Ivo and Bris, Arturo, "The Optimal Concentration of Creditors" (2001). Cowles Foundation Discussion Papers. 1600.