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Information sharing and information acquisition in credit markets

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  • Artashes Karapetyan
  • Bogdan Stacescu

Abstract

Since information asymmetries have been identified as an important source of bank profits, it may seem that the establishment of information sharing will lead to lower investment in acquiring information. However, banks base their decisions on both hard and soft information, and it is only the former type of data that can be communicated credibly. We show that when hard information is shared, banks will invest more in soft, relationship-specific information. These will lead to more accurate lending decisions, favor small, informationally opaque borrowers, and increase welfare. Since relationship banking focuses on the usage of soft information, the model implies that investment in relationship banking will increase. We test our theory using a large sample of firm-level data from 24 countries.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 454.

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Date of creation: Nov 2009
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Handle: RePEc:zur:iewwpx:454

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Keywords: Bank competition; information sharing; relationship banking; hard information; soft information;

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Cited by:
  1. Artashes Karapetyan & Bogdan Stacescu, 2009. "Information sharing and information acquisition in credit markets," IEW - Working Papers, Institute for Empirical Research in Economics - University of Zurich 454, Institute for Empirical Research in Economics - University of Zurich.
  2. Dierkes, Maik & Erner, Carsten & Langer, Thomas & Norden, Lars, 2013. "Business credit information sharing and default risk of private firms," Journal of Banking & Finance, Elsevier, Elsevier, vol. 37(8), pages 2867-2878.

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