Show me Yours and I'll Show you Mine: Sharing Borrower Information in a Competitive Credit Market

R.T.A. de Haas, J. Bos, Matteo Millone

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Abstract

We exploit detailed data on approved and rejected small business loans to assess the impact of the introduction of a credit registry in Bosnia and Herzegovina. Our findings are threefold. First, mandatory information sharing tightens lending at the extensive margin as more applications are rejected, in particular in areas with strong credit market competition. These rejections are increasingly based on hard information—especially positive borrower information from the new registry—and less on soft information. Second, lending standards also tighten at the intensive margin: the registry leads to smaller, shorter and more expensive loans. Third, the tightening of lending along both margins improves loan quality. Default rates go down in particular in high competition areas and for first-time borrowers. This suggests that a reduction in adverse selection is an important channel through which information sharing affects loan quality.
Original languageEnglish
Place of PublicationTilburg
PublisherCentER
Number of pages52
Volume2015-027
Publication statusPublished - 28 Apr 2015

Publication series

NameCentER Discussion Paper
Volume2015-027

Keywords

  • information sharing
  • credit market competition
  • hazard models

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    de Haas, R. T. A., Bos, J., & Millone, M. (2015). Show me Yours and I'll Show you Mine: Sharing Borrower Information in a Competitive Credit Market. (CentER Discussion Paper; Vol. 2015-027). CentER.