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Information Sharing, Holdup, and External Finance: Evidence from Private Firms

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  • Andrew Bird
  • Stephen A Karolyi
  • Thomas G Ruchti

Abstract

To mitigate holdup by an informed incumbent lender, a private borrower may publicly share information in order to increase lender competition. Despite proprietary costs, a subset of private borrowers voluntarily share private information in loan and credit underwriting agreements. These borrowers switch lenders at a 16% higher rate and receive lower loan financing costs. For private firms that go public, we analyze changes in the net benefits of information sharing and study the potential estimation bias from unobservable borrower quality. This setting corroborates our inference that voluntary information sharing reduces lender holdup and alleviates financial constraints for private firms. Received May 25, 2017; editorial decision August 8, 2018 by Editor David Denis.

Suggested Citation

  • Andrew Bird & Stephen A Karolyi & Thomas G Ruchti, 2019. "Information Sharing, Holdup, and External Finance: Evidence from Private Firms," The Review of Financial Studies, Society for Financial Studies, vol. 32(8), pages 3075-3104.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:8:p:3075-3104.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy110
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    Cited by:

    1. Lei, Ni & Miao, Qin & Yao, Xin, 2023. "Does the implementation of green credit policy improve the ESG performance of enterprises? Evidence from a quasi-natural experiment in China," Economic Modelling, Elsevier, vol. 127(C).
    2. Shi, Wei-Zhong & Ching, Yann-Peng & Fok, Robert (Chi-Wing) & Chang, Yuanchen, 2023. "Bank information monopolies and hold-up effects: International evidence," International Review of Economics & Finance, Elsevier, vol. 83(C), pages 286-311.
    3. Daniel Saavedra, 2023. "Do firms follow the SEC’s confidential treatment protocols? Evidence from credit agreements," Review of Accounting Studies, Springer, vol. 28(3), pages 1388-1412, September.

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