Learning about Competitors: Evidence from SME Lending

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

Abstract

We study how small and medium enterprise (SME) lenders react to information about their competitors’ contracting decisions. To isolate this learning from lenders’ joint reaction to unobserved common shocks to fundamentals, we exploit the staggered entry of lenders into an information sharing platform. Upon joining the platform, lenders adjust their contract terms toward what others are offering. This effect is mediated by market structure: lenders with higher market share or operating in concentrated markets react less to competitors’ information. Contract terms and outcomes are thus shaped by the availability of competitor information and not just by borrower or lender fundamentals.

• 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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