Does Credit Reporting Lead to a Decline in Relationship Lending? Evidence from Information Sharing Technology

Sutherland, Andrew (2018): Does Credit Reporting Lead to a Decline in Relationship Lending? Evidence from Information Sharing Technology. Published in: Journal of Accounting and Economics , Vol. 1, No. 66 (2018): pp. 123-141.

Abstract

I examine how credit reporting affects where firms access credit and how lenders contract with them. I use within firm-time and lender-time tests that exploit lenders joining a credit bureau and sharing information in a staggered pattern. I find information sharing reduces relationship-switching costs, particularly for firms that are young, small, or have had no defaults. After sharing, lenders transition away from relationship contracting, in two ways: contract maturities in new relationships are shorter, and lenders are less willing to provide financing to their delinquent borrowers. My results highlight the mixed effects of transparency-improving financial technologies on credit availability.

• Item Type: MPRA Paper
• Language: English
• Keywords: Debt contracts; information sharing; information asymmetries; hard and soft information; credit bureaus; relationship lending; transactional lending; information economics; entrepreneurial finance; credit reports; credit scores, FinTech
• Subjects: 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 > G2 - Financial Institutions and Services > G21 - Banks ; Depository Institutions ; Micro Finance Institutions ; Mortgages; G - Financial Economics > G2 - Financial Institutions and Services > G23 - Non-bank Financial Institutions ; Financial Instruments ; Institutional Investors; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill; M - Business Administration and Business Economics ; Marketing ; Accounting ; Personnel Economics > M4 - Accounting and Auditing > M41 - Accounting

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