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What happens when we forget? The effect of removing adverse information on access to credit

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  • Saengchote, Kanis
  • Tirapat, Sunti

Abstract

In a world with asymmetric information, past information helps borrowers establish reputation and credibility. However, can less information be beneficial? Using a panel of nationally representative sample of borrowers’ credit bureau information, we investigate the impact of the removal of adverse credit information for long-time delinquent borrowers in Thailand on their access to credit. The removal is a deliberated effort by policymakers to allow borrowers to reenter formal credit markets. Contrary to theoretical prediction, we find no evidence of a subsequent expansion in credit.

Suggested Citation

  • Saengchote, Kanis & Tirapat, Sunti, 2017. "What happens when we forget? The effect of removing adverse information on access to credit," Economics Letters, Elsevier, vol. 151(C), pages 96-99.
    • Handle: RePEc:eee:ecolet:v:151:y:2017:i:c:p:96-99
    DOI: 10.1016/j.econlet.2016.12.015
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    References listed on IDEAS

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    1. Pagano, Marco & Jappelli, Tullio, 1993. "Information Sharing in Credit Markets," Journal of Finance, American Finance Association, vol. 48(5), pages 1693-1718, December.
    2. Brian T. Melzer, 2011. "The Real Costs of Credit Access: Evidence from the Payday Lending Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 517-555.
    3. Ronel Elul & Piero Gottardi, 2015. "Bankruptcy: Is It Enough to Forgive or Must We Also Forget?," American Economic Journal: Microeconomics, American Economic Association, vol. 7(4), pages 294-338, November.
    4. Padilla, A. Jorge & Pagano, Marco, 2000. "Sharing default information as a borrower discipline device," European Economic Review, Elsevier, vol. 44(10), pages 1951-1980, December.
    5. Padilla, A Jorge & Pagano, Marco, 1997. "Endogenous Communication among Lenders and Entrepreneurial Incentives," The Review of Financial Studies, Society for Financial Studies, vol. 10(1), pages 205-236.
    6. David K. Musto, 2004. "What Happens When Information Leaves a Market? Evidence from Postbankruptcy Consumers," The Journal of Business, University of Chicago Press, vol. 77(4), pages 725-748, October.
    7. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    8. Scott Carrell & Jonathan Zinman, 2014. "In Harm's Way? Payday Loan Access and Military Personnel Performance," The Review of Financial Studies, Society for Financial Studies, vol. 27(9), pages 2805-2840.
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    Cited by:

    1. Chloé Zapha & Banque de France, 2023. "Access to Credit after Emerging from Corporate Bankruptcy," Working Papers halshs-03957890, HAL.
    2. Saengchote, Kanis & Samphantharak, Krislert, 2022. "Banking relationship and default priority in consumer credit: Evidence from Thai microdata," Emerging Markets Review, Elsevier, vol. 52(C).

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    More about this item

    Keywords

    Household finance; Consumer credit; Information; Credit history; Fresh start;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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