Banks play a key role in financing of firms by overcoming the information asymmetries between borrowers and lenders that affect equity and alternative forms of debt (Diamond, 1984; Diamond, 1991; Berger and Udell, 1995a). Much of the earlier theoretical literature has shown that delegating monitoring to a single bank is optimal for a firm because it avoids the unnecessary duplication of transaction and monitoring costs and minimizes free-riding among multiple investors.
