Learning about Competitors: Evidence from SME Lending

Darmouni, Olivier and Sutherland, Andrew (2018): Learning about Competitors: Evidence from SME Lending.

Abstract

This paper provides evidence of strategic complementarities in lenders’ contract terms in SME financing. To isolate this strategic effect from lenders’ joint reaction to unobserved common shocks to fundamentals, we exploit the staggered entry of lenders into an information sharing platform. Upon joining, lenders adjust their terms toward what others are offering. This effect is mediated by market power and seems to be driven by incentives to match rivals in order to preserve market share as opposed to learning about fundamentals. We also find evidence that this strategic behavior increased delinquencies during the recent crisis.

• Item Type: MPRA Paper
• Language: English
• Keywords: competition, strategic complementarities, information sharing, credit bureau, corporate loans, SME
• Subjects: D - Microeconomics > D2 - Production and Organizations > D22 - Firm Behavior: Empirical Analysis; D - Microeconomics > D4 - Market Structure, Pricing, and Design > D43 - Oligopoly and Other Forms of Market Imperfection; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information ; Mechanism Design; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D83 - Search ; Learning ; Information and Knowledge ; Communication ; Belief ; Unawareness; G - Financial Economics > G0 - General > G00 - General; G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking ; Venture Capital ; Brokerage ; Ratings and Ratings Agencies; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General

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