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The Emergence of Information Sharing in Credit Markets

  • Martin Brown
  • Christian Zehnder

We examine how asymmetric information and competition in the credit market affect voluntary information sharing between lenders. We study an experimental credit market in which information sharing can help lenders to distinguish good borrowers from bad ones, because borrowers may exogenously switch locations. Lenders, however, are also engaged in spatial competition, and lose market power by sharing information with close competitors. Our results suggest that more asymmetric information in the credit market increases information sharing behavior significantly. Stronger competition between lenders reduces information sharing, but its impact seems to be only of second order importance.

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Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 317.

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Date of creation: Apr 2007
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Handle: RePEc:zur:iewwpx:317
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  1. Martin Brown & Christian Zehnder, 2006. "Credit Reporting, Relationship Banking, and Loan Repayment," Working Papers 2006-03, Swiss National Bank.
  2. Claessens, Stijn & Laeven, Luc, 2003. "What drives bank competition? some international evidence," Policy Research Working Paper Series 3113, The World Bank.
  3. Pagano, Marco & Jappelli, Tullio, 1993. " Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
  4. Vercammen, James A, 1995. "Credit Bureau Policy and Sustainable Reputation Effects in Credit Markets," Economica, London School of Economics and Political Science, vol. 62(248), pages 461-78, November.
  5. 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.
  6. Brown, Martin & Jappelli, Tullio & Pagano, Marco, 2007. "Information Sharing and Credit: Firm-Level Evidence from Transition Countries," CEPR Discussion Papers 6313, C.E.P.R. Discussion Papers.
  7. Djankov, Simeon & McLiesh, Caralee & Shleifer, Andrei, 2007. "Private credit in 129 countries," Journal of Financial Economics, Elsevier, vol. 84(2), pages 299-329, May.
  8. A. Jorge Padilla & Marco Pagano, 1999. "Sharing Default Information as a Borrower Discipline Device," CSEF Working Papers 21, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  9. Inessa Love & Nataliya Mylenko, 2003. "Credit reporting and financing constraints," Policy Research Working Paper Series 3142, The World Bank.
  10. Hans Degryse & Steven Ongena, 2002. "Distance, Lending Relationships, and Competition," CSEF Working Papers 80, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  11. Jean Tirole, 1988. "The Theory of Industrial Organization," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262200716, June.
  12. Jappelli, Tullio & Pagano, Marco, 1999. "Information Sharing, Lending and Defaults: Cross-Country Evidence," CEPR Discussion Papers 2184, C.E.P.R. Discussion Papers.
  13. Jan Bouckaert & Hans Degryse, 2006. "Entry and Strategic Information Display in Credit Markets," Economic Journal, Royal Economic Society, vol. 116(513), pages 702-720, 07.
  14. 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.
  15. 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, 07.
  16. Gerard Caprio & James Barth & Ross Levine, 2008. "Bank Regulations Are Changing: But For Better or Worse?," Center for Development Economics 2008-04, Department of Economics, Williams College.
  17. Urs Fischbacher, 2007. "z-Tree: Zurich toolbox for ready-made economic experiments," Experimental Economics, Springer, vol. 10(2), pages 171-178, June.
  18. Powell, Andrew & Mylenko, Nataliya & Miller, Margaret & Majnoni, Giovanni, 2004. "Improving credit information, bank regulation, and supervision : on the role and design of public credit registries," Policy Research Working Paper Series 3443, The World Bank.
  19. Robert M. Hunt, 2005. "A century of consumer credit reporting in America," Working Papers 05-13, Federal Reserve Bank of Philadelphia.
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