The Economic Consequences of Borrower Information Sharing: Relationship Dynamics and Investment

63 Pages Posted: 6 Jul 2015 Last revised: 10 Mar 2017

Andrew Sutherland

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Date Written: March 6, 2017

Abstract

I use the introduction of a US commercial credit bureau to examine how information sharing affects where firms access credit and how lenders contract with them. I use within firm- and lender-time tests that exploit firms having ongoing relationships with multiple lenders that join the bureau 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, credit bureaus, relationship lending, entrepreneurial finance, credit scores, switching costs

JEL Classification: D82, G21, G23, G30, G32, G33, H42, M41

Suggested Citation

Sutherland, Andrew, The Economic Consequences of Borrower Information Sharing: Relationship Dynamics and Investment (March 6, 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

Andrew Sutherland (Contact Author)

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

Paper statistics

Downloads
334
Rank
70,511
Abstract Views
1,212