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

58 Pages Posted: 22 May 2015 Last revised: 6 Mar 2016

See all articles by Jaap W.B. Bos

Jaap W.B. Bos

Maastricht University

Ralph De Haas

European Bank for Reconstruction and Development; Centre for Economic Policy Research (CEPR); 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: February 25, 2016

Abstract

We exploit contract-level data on approved and rejected small-business loans to assess the impact of a new credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as loan officers reject more applications. These rejections are based increasingly on hard information — especially registry information on applicants’ outstanding debt — and less on soft information. Second, lending standards also tighten at the intensive margin: information sharing leads to smaller, shorter and more expensive loans for first-time borrowers. Yet, in line with lower switching costs, repeat borrowers gain from information sharing. Third, the tightening of lending standards results in fewer defaults, in particular among first-time borrowers, and higher returns on loans. 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 (February 25, 2016). BAFFI CAREFIN Centre Research Paper No. 2015-8. Available at SSRN: https://ssrn.com/abstract=2609271 or http://dx.doi.org/10.2139/ssrn.2609271

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

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

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

Register to save articles to
your library

Register

Paper statistics

Downloads
119
Abstract Views
870
rank
124,779
PlumX Metrics