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Role and Effects of Credit Information Sharing

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Abstract

Information sharing about borrowers’ characteristics and their indebtedness can have important effects on credit markets activity. First, it improves the banks’ knowledge of applicants’ characteristics and permits a more accurate prediction of their repayment probabilities. Second, it reduces the informational rents that banks could otherwise extract from their customers. Third, it can operate as a borrower discipline device. Finally, it eliminates borrowers’ incentive to become over-indebted by drawing credit simultaneously from many banks without any of them realizing. This chapter provides a brief account of models that capture these four effects of information sharing on credit market performance, as well as of the growing body of empirical studies that have attempted to investigate the various dimensions and effects of credit reporting activity. Understanding the effects of information sharing also helps to shed light on some key issues in the design of a credit information system, such as the relationship between public and private mechanisms, the dosage between black and white information sharing, and the “memory” of the system. Merging the insights from theoretical models with the lessons of experience, one can avoid serious pitfalls in the design of credit information systems.

Suggested Citation

  • Tullio Jappelli & Marco Pagano, 2005. "Role and Effects of Credit Information Sharing," CSEF Working Papers 136, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  • Handle: RePEc:sef:csefwp:136
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    File URL: http://www.csef.it/WP/wp136.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.
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    4. Gehrig, Thomas & Stenbacka, Rune, 2007. "Information sharing and lending market competition with switching costs and poaching," European Economic Review, Elsevier, vol. 51(1), pages 77-99, January.
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    7. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
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    9. repec:hrv:faseco:30728041 is not listed on IDEAS
    10. Armando Castelar Pinneiro & Célia Cabral, 1999. "Credit Markets in Brazil: The Role of Judicial Enforcement and Other Institutions," Research Department Publications 3066, Inter-American Development Bank, Research Department.
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    Citations

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    Cited by:

    1. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2009. "Information sharing and credit: Firm-level evidence from transition countries," Journal of Financial Intermediation, Elsevier, vol. 18(2), pages 151-172, April.
    2. Verónica Balzarotti & Alejandra Anastasi, 2013. "Does Competition for Novice Borrowers Hurt Access to Finance? An Analysis in a Context of High Risk and Low Outreach," Ensayos Económicos, Central Bank of Argentina, Economic Research Department, vol. 1(69), pages 101-149, December.
    3. Ronel Elul & Piero Gottardi, 2015. "Bankruptcy: Is It Enough to Forgive or Must We Also Forget?," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 294-338, November.
    4. Asongu, Simplice A & Odhiambo, Nicholas M., 2018. "Information asymmetry, financialisation and financial access," Working Papers 23931, University of South Africa, Department of Economics.
    5. Federico Ferretti, 2010. "A European Perspective on Consumer Loans and the Role of Credit Registries: the Need toReconcile Data Protection, Risk Management, Efficiency, Over-indebtedness, and a Better Prudential Supervision of," Journal of Consumer Policy, Springer, vol. 33(1), pages 1-27, March.
    6. Alberto Bennardo & Marco Pagano & Salvatore Piccolo, 2015. "Multiple Bank Lending, Creditor Rights, and Information Sharing," Review of Finance, European Finance Association, vol. 19(2), pages 519-570.
    7. Giuseppe Bertola, 2007. "Finance and Welfare States in Globalising Markets," RBA Annual Conference Volume,in: Christopher Kent & Jeremy Lawson (ed.), The Structure and Resilience of the Financial System Reserve Bank of Australia.
    8. Daniel Dias & Christine Richmond & Diana Bonfim, 2011. "What Happens After Default? Stylized Facts on Access to Credit," Working Papers w201101, Banco de Portugal, Economics and Research Department.
    9. Becchetti, Leonardo & Castelli, Annalisa & Hasan, Iftekhar, 2008. "Investment-cash flow sensitivities, credit rationing and financing constraints," Research Discussion Papers 15/2008, Bank of Finland.
    10. World Bank, 2010. "Scaling-Up SME Access to Financial Services," World Bank Other Operational Studies 12515, The World Bank.
    11. Joon-Ho Hahm & Sangche Lee, 2011. "Economic effects of positive credit information sharing: the case of Korea," Applied Economics, Taylor & Francis Journals, vol. 43(30), pages 4879-4890.
    12. Brown, Martin & Degryse, Hans & Höwer, Daniel & Penas, María Fabiana, 2012. "How do banks screen innovative firms? Evidence from start-up panel data," ZEW Discussion Papers 12-032, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    13. Büyükkarabacak, Berrak & Valev, Neven, 2012. "Credit information sharing and banking crises: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 34(3), pages 788-800.
    14. Leonardo Becchetti & Annalisa Castelli & Iftekhar Hasan, 2010. "Investment–cash flow sensitivities, credit rationing and financing constraints in small and medium-sized firms," Small Business Economics, Springer, vol. 35(4), pages 467-497, November.

    More about this item

    Keywords

    information sharing; credit markets;

    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
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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