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Information Technology and Lender Competition

Author

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  • Vives, Xavier
  • Ye, Zhiqiang

Abstract

We study how information technology (IT) affects lender competition, entrepreneurs’ investment, and welfare in a spatial model. The effects of an IT improvement depend on whether it weakens the influence of lender–borrower distance on monitoring costs. If it does, it has a hump-shaped effect on entrepreneurs’ investment and social welfare. If not, competition intensity does not vary, improving lender profits, entrepreneurs’ investment, and social welfare. When entrepreneurs’ moral hazard problem is severe, IT-induced competition is more likely to reduce investment and welfare. We also find that lenders’ price discrimination is not welfare-optimal. Our results are consistent with received empirical work on lending to SMEs.

Suggested Citation

  • Vives, Xavier & Ye, Zhiqiang, 2021. "Information Technology and Lender Competition," CEPR Discussion Papers 16258, Centre for Economic Policy Research.
    • Handle: RePEc:cpr:ceprdp:16258
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    Cited by:

    1. is not listed on IDEAS
    2. Wu, Haomin & Yang, Yuting & Wang, Jiani, 2026. "Flexible fintech regulation and corporate digital innovation: Evidence from a quasi-natural experiment," Research in International Business and Finance, Elsevier, vol. 82(C).
    3. Agur, Itai & Ari, Anil & Dell’Ariccia, Giovanni, 2025. "Bank competition and household privacy in a digital payment monopoly," Journal of Financial Economics, Elsevier, vol. 166(C).
    4. Hanying Qi & Keng Yang & Ruijie Wu & Xin Wu & Gaoxiang Wang & Ziyu Zhang, 2026. "Bank FinTech and credit risk-taking: the role of competition and regulation," Risk Management, Palgrave Macmillan, vol. 28(2), pages 1-29, May.
    5. Eccles, Peter & Siciliani, Paolo, 2026. "Information disclosure and information acquisition in credit markets," International Journal of Industrial Organization, Elsevier, vol. 104(C).
    6. Wu, Xinhong & Wu, Xinmei, 2025. "How does bank digitalization benefit firm borrowing? Evidence from China," Economic Modelling, Elsevier, vol. 153(C).
    7. Vives, Xavier & Ye, Zhiqiang, 2025. "Fintech entry, lending market competition, and welfare," Journal of Financial Economics, Elsevier, vol. 168(C).

    More about this item

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • I31 - Health, Education, and Welfare - - Welfare, Well-Being, and Poverty - - - General Welfare, Well-Being

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