Communication of Soft Information to Lenders: Credibility and Reputation

34 Pages Posted: 29 Mar 2007

See all articles by Jay Pil Choi

Jay Pil Choi

Michigan State University - Department of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Eirik Gaard Kristiansen

NHH Norwegian School of Economics; Norwegian School of Economics (NHH) - Department of Economics

Jae Hyon Nahm

Korea University

Date Written: March 26, 2007

Abstract

Borrowers' reputation concerns makes communication of soft or non-verifiable information credible. We find that some misreporting of short-term information has costs as well as benefits. The costs are due to inefficient management of investments, while the benefits are due to the fact that some short-term misreporting facilitates signaling of a firm's long-term prospects. We discuss how monitoring of an ongoing project may deprive a firm of using its communication strategy to signal long-term prospects.

Keywords: Soft information, reputation, credibility, monitoring, loans

JEL Classification: D82, G21, L14, M40

Suggested Citation

Choi, Jay Pil and Kristiansen, Eirik Gaard and Nahm, Jae Hyon, Communication of Soft Information to Lenders: Credibility and Reputation (March 26, 2007). Available at SSRN: https://ssrn.com/abstract=976886 or http://dx.doi.org/10.2139/ssrn.976886

Jay Pil Choi

Michigan State University - Department of Economics ( email )

101 Marshall Hall
East Lansing, MI 48824
United States
517-353-7281 (Phone)

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

HOME PAGE: http://www.CESifo.de

Eirik Gaard Kristiansen (Contact Author)

NHH Norwegian School of Economics ( email )

Helleveien 30
Bergen, NO-5045
Norway
+47 55 95 92 78 (Phone)
+47 55 95 95 43 (Fax)

Norwegian School of Economics (NHH) - Department of Economics

Helleveien 30
N-5035 Bergen
Norway

Jae Hyon Nahm

Korea University ( email )

1 Anam-dong 5 ka
Seoul, 136-701
Korea, Republic of (South Korea)

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