Public Information and Coordination: Evidence from a Credit Registry Expansion

Journal of Finance, Vol. 66, No. 2, pp. 379-412, 2011

47 Pages Posted: 22 Oct 2011 Last revised: 25 Oct 2011

See all articles by Daniel Paravisini

Daniel Paravisini

London School of Economics & Political Science (LSE)

Andrew Hertzberg

Federal Reserve Bank of Philadelphia

Jose Maria Liberti

Northwestern University - Kellogg School of Management; DePaul University

Multiple version iconThere are 2 versions of this paper

Date Written: April 1, 2011

Abstract

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that made lenders' negative private assessments about their borrowers public. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of the reaction by other lenders to the same firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.

Suggested Citation

Paravisini, Daniel and Hertzberg, Andrew and Liberti, Jose Maria, Public Information and Coordination: Evidence from a Credit Registry Expansion (April 1, 2011). Journal of Finance, Vol. 66, No. 2, pp. 379-412, 2011. Available at SSRN: https://ssrn.com/abstract=1947028

Daniel Paravisini

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Andrew Hertzberg (Contact Author)

Federal Reserve Bank of Philadelphia ( email )

Ten Independence Mall
Philadelphia, PA 19106-1574
United States

Jose Maria Liberti

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Jacobs 4203
Evanston, IL 60208
United States
(847) 491-5861 (Phone)
(847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/liberti_jose.aspx

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
(312) 362-8739 (Phone)
(312) 362-6566 (Fax)

Here is the Coronavirus
related research on SSRN

Paper statistics

Downloads
35
Abstract Views
391
PlumX Metrics