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The Impact of Information Sharing on the Use of Collateral versus Guarantees

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  • Ralph De Haas
  • Matteo Millone

Abstract

This study exploits contract-level data from Bosnia and Herzegovina to assess the impact of a new credit registry on the use of borrower collateral versus third-party guarantees. Among first-time borrowers, the introduction of mandatory information sharing leads to a shift from collateral to guarantees, in particular for riskier borrowers. Among repeat borrowers, both collateral and guarantee requirements decline in proportion to the length of the lending relationship. These results suggest that information sharing can both reduce adverse selection among new borrowers and hold-up problems among repeat borrowers.

Suggested Citation

  • Ralph De Haas & Matteo Millone, 2020. "The Impact of Information Sharing on the Use of Collateral versus Guarantees," The World Bank Economic Review, World Bank, vol. 34(Supplemen), pages 14-19.
    • Handle: RePEc:oup:wbecrv:v:34:y:2020:i:supplement_1:p:s14-s19.
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    File URL: http://hdl.handle.net/10.1093/wber/lhz011
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    References listed on IDEAS

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    1. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-689, October.
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    6. Karapetyan, Artashes & Stacescu, Bogdan, 2014. "Does information sharing reduce the role of collateral as a screening device?," Journal of Banking & Finance, Elsevier, vol. 43(C), pages 48-57.
    7. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
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    Cited by:

    1. Elisabeth Beckmann & Christa Hainz & Sarah Reiter, 2022. "Third-Party Loan Guarantees: Measuring Literacy and its Effect on Financial Decisions (Elisabeth Beckmann, Christa Hainz, Sarah Reiter)," Working Papers 237, Oesterreichische Nationalbank (Austrian Central Bank).

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