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The emergence of information sharing in credit markets

  • Brown, Martin
  • Zehnder, Christian

We provide the first systematic empirical analysis of 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. Lenders may, however, also 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. Stronger competition between lenders reduces information sharing. In credit markets where lenders may fail to coordinate on sharing information, the degree of information asymmetry, rather than lender competition, drives actual information sharing behavior.

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Article provided by Elsevier in its journal Journal of Financial Intermediation.

Volume (Year): 19 (2010)
Issue (Month): 2 (April)
Pages: 255-278

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Handle: RePEc:eee:jfinin:v:19:y:2010:i:2:p:255-278
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/622875

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  1. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
  2. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2008. "Information sharing and credit: Firm-level evidence from transition countries," CFS Working Paper Series 2008/34, Center for Financial Studies (CFS).
  3. Tullio Jappelli & Marco Pagano, 1999. "Information Sharing, Lending and Defaults: Cross-Country Evidence," CSEF Working Papers 22, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  4. 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 3443, The World Bank.
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  7. Stijn Claessens & Luc Laeven, 2004. "What drives bank competition? Some international evidence," Proceedings, Federal Reserve Bank of Cleveland, pages 563-592.
  8. Jan Bouckaert & Hans Degryse, 2002. "Entry and Strategic Information Display in Credit Markets," CSEF Working Papers 79, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Jappelli, Tullio & Pagano, Marco, 1991. "Information Sharing in Credit Markets," CEPR Discussion Papers 579, C.E.P.R. Discussion Papers.
  10. Gerard Caprio & James Barth & Ross Levine, 2008. "Bank Regulations Are Changing: But For Better or Worse?," Center for Development Economics 2008-04, Department of Economics, Williams College.
  11. Bennardo, Alberto & Pagano, Marco & Piccolo, Salvatore, 2009. "Multiple-Bank Lending, Creditor Rights and Information Sharing," CEPR Discussion Papers 7186, C.E.P.R. Discussion Papers.
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  13. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
  14. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  15. Martin Brown & Christian Zehnder, 2006. "Credit Reporting, Relationship Banking, and Loan Repayment," Working Papers 2006-03, Swiss National Bank.
  16. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
  17. Robert M. Hunt, 2005. "A century of consumer credit reporting in America," Working Papers 05-13, Federal Reserve Bank of Philadelphia.
  18. DANIEL B. KLElN, 1992. "Promise Keeping In The Great Society: A Model Of Credit Information Sharing," Economics and Politics, Wiley Blackwell, vol. 4(2), pages 117-136, 07.
  19. Vercammen, James A, 1995. "Credit Bureau Policy and Sustainable Reputation Effects in Credit Markets," Economica, London School of Economics and Political Science, vol. 62(248), pages 461-78, November.
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