71 Pages Posted: 6 Jul 2015 Last revised: 9 Aug 2017
Date Written: August 7, 2017
I examine how credit reporting affects where firms access credit and how lenders contract with them. I use within firm- and lender-time tests that exploit lenders joining a credit bureau and sharing information in a staggered pattern. I find information sharing reduces relationship-switching costs, particularly for firms that are young, small, or have had no defaults. After sharing, lenders transition away from relationship contracting, in two ways: contract maturities in new relationships are shorter, and lenders are less willing to provide financing to their delinquent borrowers. My results highlight the mixed effects of transparency-improving financial technologies on credit availability.
Keywords: Debt contracts; information sharing; information asymmetries; hard and soft information; credit bureaus; relationship lending; transactional lending; information economics; entrepreneurial finance; credit reports; credit scores, FinTech
JEL Classification: D82, G21, G23, G30, G32, G33, H42, M41
Suggested Citation: Suggested Citation
Sutherland, Andrew, Does Credit Reporting Lead to a Decline in Relationship Lending? (August 7, 2017). MIT Sloan Research Paper No. 5170-16. Available at SSRN: https://ssrn.com/abstract=2626924 or http://dx.doi.org/10.2139/ssrn.2626924