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Information Technology and Financial Services Competition

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Author Info
Robert Hauswald
Robert Marquez

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Abstract

We analyze how two dimensions of technological progress affect competition in financial services. While better technology may result in improved information processing, it might also lead to low-cost or even free access to information through, for example, informational spillovers. In the context of credit screening, we show that better access to information decreases interest rates and the returns from screening. However, an improved ability to process information increases interest rates and bank profits. Hence predictions regarding financial claims' pricing hinge on the overall effect ascribed to technological progress. Our results generalize to other financial markets where informational asymmetries drive profitability, such as insurance and securities markets. Copyright 2003, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/rfs/hhg017
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Publisher Info
Article provided by Oxford University Press for Society for Financial Studies in its journal The Review of Financial Studies.

Volume (Year): 16 (2003)
Issue (Month): 3 (July)
Pages: 921-948
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Handle: RePEc:oup:rfinst:v:16:y:2003:i:3:p:921-948

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  4. Claessens, Stijn, 2006. "Competitive implications of cross-border banking," Policy Research Working Paper Series 3854, The World Bank. [Downloadable!]
  5. Kenneth Daniels & Gabriel Ramirez, 2008. "Information, Credit Risk, Lender Specialization and Loan Pricing: Evidence from the DIP Financing Market," Journal of Financial Services Research, Springer, vol. 34(1), pages 35-59, August. [Downloadable!] (restricted)
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  9. Inderst, Roman & Mueller, Holger M, 2005. "Informed Lending and Security Design," CEPR Discussion Papers 5185, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  11. Ari Hyytinen & Otto Toivanen, 2002. "Misuse and Non-use of Information Acquisition Technologies in Banking," Discussion Papers 823, The Research Institute of the Finnish Economy. [Downloadable!]
  12. Inderst, Roman & Mueller, Holger M, 2003. "Credit Risk Analysis and Security Design," CEPR Discussion Papers 3686, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
  13. Mitchell Berlin & Alexander Butler, 2002. "Collateral and competition," Working Papers 02-22, Federal Reserve Bank of Philadelphia. [Downloadable!]
  14. Ginés Hernández-Cánovas & Pedro Martínez-Solano, 2007. "Effect of the Number of Banking Relationships on Credit Availability: Evidence from Panel Data of Spanish Small Firms," Small Business Economics, Springer, vol. 28(1), pages 37-53, January. [Downloadable!] (restricted)
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  17. Lehner, Maria & Schnitzer, Monika, 2006. "Entry of Foreign Banks and their Impact on Host Countries," Discussion Papers in Economics 1208, University of Munich, Department of Economics. [Downloadable!]
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