Sharing Information in the Credit Market: Contract-Level Evidence from U.S. Firms

76 Pages Posted: 17 Mar 2009 Last revised: 1 Jun 2010

See all articles by Antonio Doblas-Madrid

Antonio Doblas-Madrid

affiliation not provided to SSRN

Raoul Minetti

Michigan State University - Department of Economics

Date Written: March 17, 2009

Abstract

We study the impact of lenders' information sharing on credit market performance using contract-level data from a major U.S. credit bureau that serves the equipment finance industry. The staggered entry of lenders into the bureau, the richness of the data set (28,000 loans and leases extended to roughly 4,000 businesses), and the small and medium size of borrowing firms offer a suitable natural experiment to identify the effect of lenders' improved access to information. In line with the predictions of Pagano and Jappelli (1993) and Padilla and Pagano (1997, 2000), we find that information sharing reduces firms' delinquencies on loans and leases, and that this effect is more pronouned for informationally opaque and risky businesses. The results also document that information sharing induces creditors to grant smaller and shorter-term loans and to demand more guarantees. Thus, information sharing appears to improve firms' repayment performance but not necessarily leads financiers to loosen their lending standards.

Keywords: Information asymmetries, Credit contracts, Credit bureaus.

JEL Classification: D82, G21

Suggested Citation

Doblas-Madrid, Antonio and Minetti, Raoul, Sharing Information in the Credit Market: Contract-Level Evidence from U.S. Firms (March 17, 2009). Available at SSRN: https://ssrn.com/abstract=1361928 or http://dx.doi.org/10.2139/ssrn.1361928

Antonio Doblas-Madrid

affiliation not provided to SSRN ( email )

Raoul Minetti (Contact Author)

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-355-7349 (Phone)
517-432-1068 (Fax)

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