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Business credit information sharing and default risk of private firms

Author

Listed:
  • Maik Dierkes

    (Finance Center M nster, University of M nster)

  • Carsten Erner

    (Finance Center M nster, University of M nster)

  • Thomas Langer

    (Finance Center M nster, University of M nster)

  • Lars Norden

    () (Rotterdam School of Management, Erasmus University)

Abstract

We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms' payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher for smaller and less distant firms. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.

Suggested Citation

  • Maik Dierkes & Carsten Erner & Thomas Langer & Lars Norden, 2012. "Business credit information sharing and default risk of private firms," Mo.Fi.R. Working Papers 64, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
  • Handle: RePEc:anc:wmofir:64
    as

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    File URL: http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir064.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Asymmetric information; Credit bureau; Credit risk; Hard and soft information; Private firms;

    JEL classification:

    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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