Optimal Credit History Disclosure: What Should Be Disclosed?

59 Pages Posted: 31 Oct 2023 Last revised: 16 Jan 2025

See all articles by Inkee Jang

Inkee Jang

Hanyang University - School of Business

Kee-Youn Kang

University of Liverpool Management School

Date Written: October 20, 2023

Abstract

We develop a dynamic model of unsecured debt contracts under adverse selection, where an entrepreneur borrows to fund a project with returns dependent on both entrepreneurial and aggregate productivity. Entrepreneurial productivity is private information. Lenders assess the entrepreneur's productivity based on their credit history, which may include default and/or transaction histories, along with historical aggregate productivity. While transaction history is more informative than default history, its disclosure is effective only when current economic conditions are favorable and it incurs higher social costs. We explore how future economic outlooks influence the effects of credit history disclosure and identify the optimal information regime.

Keywords: Adverse selection, Credit history, Debt contracts, Optimal information disclosure

JEL Classification: C78, D82, D86, E44, G23

Suggested Citation

Jang, Inkee and Kang, Kee-Youn, Optimal Credit History Disclosure: What Should Be Disclosed? (October 20, 2023). Available at SSRN: https://ssrn.com/abstract=4590467 or http://dx.doi.org/10.2139/ssrn.4590467

Inkee Jang

Hanyang University - School of Business ( email )

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HOME PAGE: http://www.inkeejang.com

Kee-Youn Kang (Contact Author)

University of Liverpool Management School ( email )

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