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The Emergence of Information Sharing in Credit Markets

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  • Martin Brown
  • Christian Zehnder

Abstract

We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, ecause borrowers may exogenously switch locations. Lenders are, however, engaged in spatial competition, and thus may lose market power by sharing information with competitors. Our results suggest that asymmetric information in the credit market increases the frequency of information sharing between lenders significantly. Competition between lenders reduces information sharing, but the impact of competition seems to be only of second order importance.

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Bibliographic Info

Paper provided by Swiss National Bank in its series Working Papers with number 2008-01.

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Length: 53 pages
Date of creation: 2008
Date of revision:
Handle: RePEc:snb:snbwpa:2008-01

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Keywords: information sharing; credit; competition; asymmetric information;

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References

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  1. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, Elsevier, vol. 84(2), pages 299-329, May.
  2. Jappelli, Tullio & Pagano, Marco, 1999. "Information Sharing, Lending and Defaults: Cross-Country Evidence," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2184, C.E.P.R. Discussion Papers.
  3. Jan Bouckaert & Hans Degryse, 2006. "Entry and Strategic Information Display in Credit Markets," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 116(513), pages 702-720, 07.
  4. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, Federal Reserve Bank of Cleveland, pages 563-592.
  5. Martin Brown & Christian Zehnder, 2007. "Credit Reporting, Relationship Banking, and Loan Repayment," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 39(8), pages 1883-1918, December.
  6. Hans Degryse & Steven Ongena, 2002. "Distance, Lending Relationships, and Competition," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 80, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  7. Gerard Caprio & James Barth & Ross Levine, 2008. "Bank Regulations Are Changing: But For Better or Worse?," Center for Development Economics, Department of Economics, Williams College 2008-04, Department of Economics, Williams College.
  8. A Jorge Padilla & Marco Pagano, 1994. "Sharing Default Information as a Borrower Discipline Device," CEPR Financial Markets Paper, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ 0043, European Science Foundation Network in Financial Markets, c/o C.E.P.R, 77 Bastwick Street, London EC1V 3PZ.
  9. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2008. "Information sharing and credit: Firm-level evidence from transition countries," CFS Working Paper Series, Center for Financial Studies (CFS) 2008/34, Center for Financial Studies (CFS).
  10. Jappelli, Tullio & Pagano, Marco, 1991. "Information Sharing in Credit Markets," CEPR Discussion Papers, C.E.P.R. Discussion Papers 579, C.E.P.R. Discussion Papers.
  11. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series, The World Bank 3142, The World Bank.
  12. Robert M. Hunt, 2005. "A century of consumer credit reporting in America," Working Papers 05-13, Federal Reserve Bank of Philadelphia.
  13. Vercammen, James A, 1995. "Credit Bureau Policy and Sustainable Reputation Effects in Credit Markets," Economica, London School of Economics and Political Science, London School of Economics and Political Science, vol. 62(248), pages 461-78, November.
  14. DANIEL B. KLElN, 1992. "Promise Keeping In The Great Society: A Model Of Credit Information Sharing," Economics and Politics, Wiley Blackwell, Wiley Blackwell, vol. 4(2), pages 117-136, 07.
  15. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, Springer, vol. 10(2), pages 171-178, June.
  16. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, Elsevier, vol. 51(1), pages 77-99, January.
  17. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262200716, December.
  18. Powell, Andrew & Mylenko, Nataliya & Miller, Margaret & Majnoni, Giovanni, 2004. "Improving credit information, bank regulation, and supervision : on the role and design of public credit registries," Policy Research Working Paper Series, The World Bank 3443, The World Bank.
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Citations

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Cited by:
  1. Vigneron, Ludovic & Hajj Chehade, Hiba, 2013. "Structuration du pool bancaire de la PME : une revue de la littérature
    [Structuring SMEs' banks relationships: a review]
    ," MPRA Paper 50498, University Library of Munich, Germany.
  2. Trautmann, Stefan T. & Vlahu, Razvan, 2013. "Strategic loan defaults and coordination: An experimental analysis," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(3), pages 747-760.
  3. McIntosh, Craig & Sadoulet, Elisabeth & Buck, Steven & Rosada, Tomas, 2013. "Reputation in a public goods game: Taking the design of credit bureaus to the lab," Journal of Economic Behavior & Organization, Elsevier, Elsevier, vol. 95(C), pages 270-285.
  4. J. Philipp Reiß & Irenaeus Wolff, 2012. "Incentive Effects of Funding Contracts: An Experiment," Working Paper Series of the Department of Economics, University of Konstanz, Department of Economics, University of Konstanz 2012-26, Department of Economics, University of Konstanz.
  5. Giorgia Barboni & Tania Treibich, 2012. "(Just) first time lucky ?the impact of single versus multiple bank lending relationships on firms and banks'behavior," Documents de Travail de l'OFCE, Observatoire Francais des Conjonctures Economiques (OFCE) 2012-26, Observatoire Francais des Conjonctures Economiques (OFCE).
  6. Giorgia Barboni & Tania Treibich, 2013. "First Time Lucky? An Experiment on Single versus Multiple Bank Lending Relationships," GREDEG Working Papers, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis 2013-28, Groupe de REcherche en Droit, Economie, Gestion (GREDEG CNRS), University of Nice Sophia Antipolis.
  7. Bruhn, Miriam & Farazi, Subika & Kanz, Martin, 2013. "Bank competition, concentration, and credit reporting," Policy Research Working Paper Series, The World Bank 6442, The World Bank.
  8. Steffen Huck & Gabriele K. Ruchala & Jean-Robert Tyran, 2006. "Competition Fosters Trust," Discussion Papers, University of Copenhagen. Department of Economics 06-22, University of Copenhagen. Department of Economics.
  9. Tullio Jappelli & Marco Pagano & Marco di Maggio, 2008. "Households’ Indebtedness and Financial Fragility," CSEF Working Papers, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy 208, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy, revised 09 Sep 2010.
  10. Martin Brown & Stefan Trautmann & Razvan Vlahu, 2012. "Contagious Bank Runs: Experimental Evidence," DNB Working Papers, Netherlands Central Bank, Research Department 363, Netherlands Central Bank, Research Department.
  11. Doblas-Madrid, Antonio & Minetti, Raoul, 2013. "Sharing information in the credit market: Contract-level evidence from U.S. firms," Journal of Financial Economics, Elsevier, Elsevier, vol. 109(1), pages 198-223.

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