Show Me Yours and I'll Show You Mine: Sharing Borrower Information in a Competitive Credit Market

CentER Discussion Paper Series No. 2015-027

European Banking Center Discussion Paper No. 2015-007

52 Pages Posted: 29 Apr 2015  

Jaap W.B. Bos

Maastricht University

Ralph de Haas

European Bank for Reconstruction and Development; Tilburg University - Department of Finance

Matteo Millone

VU University Amsterdam - Department of Finance and Financial Sector Management

Multiple version iconThere are 2 versions of this paper

Date Written: April 28, 2015

Abstract

We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information — especially positive borrower information from the new registry — and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.

Keywords: Information sharing, credit market competition, hazard models

JEL Classification: D04, D82, G21, G28

Suggested Citation

Bos, Jaap W.B. and de Haas, Ralph and Millone, Matteo, Show Me Yours and I'll Show You Mine: Sharing Borrower Information in a Competitive Credit Market (April 28, 2015). CentER Discussion Paper Series No. 2015-027. Available at SSRN: https://ssrn.com/abstract=2599993 or http://dx.doi.org/10.2139/ssrn.2599993

Jaap W.B. Bos (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, 6200MD
Netherlands

Ralph de Haas

European Bank for Reconstruction and Development ( email )

One Exchange Square
London, EC2A 2JN
United Kingdom

HOME PAGE: www.ebrd.com

Tilburg University - Department of Finance ( email )

P.O. Box 90153
Tilburg, 5000 LE
Netherlands

Matteo Millone

VU University Amsterdam - Department of Finance and Financial Sector Management ( email )

De Boelelaan 1105
NL-1081HV Amsterdam
Netherlands

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