How Voluntary Information Sharing Systems Form: Evidence from a U.S. Commercial Credit Bureau

Abstract

We use the introduction of a U.S. commercial credit bureau to study when lenders adopt voluntary information sharing technology and the consequences of this sharing technology for competition and credit access. Our results suggest that lenders trade off access to new markets against heightened competition for their own borrowers. Lenders that do not share initially lose clients to competitors that share, which ultimately compels them to share and leads to the formation of an information sharing system. We exploit variation in bureau membership to demonstrate that information sharing improves access to credit but only for high quality borrowers and only after bureau membership expands. Our results offer the first direct evidence on when financial intermediaries adopt information sharing technologies and how sharing systems form and evolve.

Keywords: Information Sharing, Adverse Selection, Information Rents, Access to Credit, Financial Intermediation, Credit Bureaus, Financial Technology, Technology Adoption, SMEs

JEL Classification: G21, G23, G32