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The Importance of Borrowers’ History on Credit Behavior: The Mexican Experience

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  • José L. Negrin

Abstract

Credit sharing information mechanisms represent the institutional answer to the asymmetric information problems inherent to credit markets. It is generally accepted that sharing information is beneficial for the participant institutions, however, there are few studies that have measured the impact of past behavioral information on risk analysis. Applying a Probit model to the micro level database gathered by the Mexican Public Registry of Credit Information we find that historical variables, like previous defaults and previous missing payments are highly significant in explaining the probability of default. In particular, having defaulted a loan in the past, increases current loan’s default probability in 30 percentage points. We also find that the longer the borrower has been in the market and the larger the loan, the less likely it is that the current loan will be defaulted on. Additionally, we measure the effects of macroeconomic fluctuations over individual loans’ probability of default; we find that inflation significantly increases it while economic growth reduces it. Our results imply that effort should be exerted to develop more complete databases on individuals’ past behavior. This is particularly relevant in the Latin American context were the credit sharing industry is not very developed

Suggested Citation

  • José L. Negrin, 2004. "The Importance of Borrowers’ History on Credit Behavior: The Mexican Experience," Econometric Society 2004 Latin American Meetings 226, Econometric Society.
  • Handle: RePEc:ecm:latm04:226
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    File URL: http://repec.org/esLATM04/up.7009.1082047691.pdf
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    References listed on IDEAS

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    1. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. Negrin, José Luis, 2001. "Mecanismos para compartir información crediticia. Evidencia internacional y la experiencia mexicana," El Trimestre Económico, Fondo de Cultura Económica, vol. 0(271), pages 405-466, julio-sep.
    3. Jappelli, Tullio & Pagano, Marco, 2002. "Information sharing, lending and defaults: Cross-country evidence," Journal of Banking & Finance, Elsevier, vol. 26(10), pages 2017-2045, October.
    4. 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.
    5. Kallberg, Jarl G. & Udell, Gregory F., 2003. "The value of private sector business credit information sharing: The US case," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 449-469, March.
    6. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-236.
    7. 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, July.
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    More about this item

    Keywords

    credit information; probity modelling; Mexico;

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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