Public Information and Coordination: Evidence from a Credit Registry Expansion

Abstract:     
When agents have incentives to coordinate, actions are more sensitive to public than to private information because it is a better forecast of the actions of others. We provide evidence of this publicity multiplier among creditors to a common borrower. A coordination problem arises because each creditor has less incentive to rollover financing if it believes other creditors will liquidate their claims and potentially disrupt operations. For identification we exploit a technological change in Argentina's Public Credit Registry in 1998 that led to the disclosure of debt and rating information for firms with less than $200,000 in total debt. Comparing firms either side of this threshold, we show that lenders who already had a negative assessment of a firm reduce lending upon announcement that private assessments will become common knowledge. The decline occurs only if the firm has other creditors, and before the lender receives any additional information. On average, making information public causes a permanent decline in debt and an immediate increase in defaults.

Keywords: Credit Markets, Coordination Failures

JEL Classifications: G21, G38, D80

Working Paper Series