Does credit information sharing reduce discouraged borrowers?
40 Pages Posted: 1 Jun 2021
Date Written: May 31, 2021
Information asymmetry is a fundamental problem creating malfunctions in the credit market. On the supply side, credit information sharing is recognized as an effective solution to mitigate asymmetric information. On the demand side, however, its impact on discouraged borrowers is missing in empirical research. Using data from the Enterprise Survey of The World Bank and information sharing data from Doing Business for developing countries worldwide, this research highlights the effectiveness of information sharing in reducing discouraged borrowers, especially information sharing through public credit registries. More interestingly, the non-linear effect of increased information on discouraged borrowers, predicted in the theory of Kon and Storey (2003), is also found. There is evidence to confirm that information sharing through private credit bureaus discourages firms from applying for loans if their coverage is low, while it enhances the demand for bank credit if their coverage reaches a sufficient level.
Keywords: discouraged borrowers, asymmetric information, information sharing, private credit bureau, public credit registry, developing countries
JEL Classification: G21, 050
Suggested Citation: Suggested Citation