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Information sharing and information acquisition in credit markets

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  • Artashes Karapetyan
  • Bogdan Stacescu

Abstract

Since information asymmetries have been identified as an important source of bank profits, it may seem that the establishment of information sharing will lead to lower investment in acquiring information. However, banks base their decisions on both hard and soft information, and it is only the former type of data that can be communicated credibly. We show that when hard information is shared, banks will invest more in soft, relationship-specific information. These will lead to more accurate lending decisions, favor small, informationally opaque borrowers, and increase welfare. Since relationship banking focuses on the usage of soft information, the model implies that investment in relationship banking will increase. We test our theory using a large sample of firm-level data from 24 countries.

Suggested Citation

  • Artashes Karapetyan & Bogdan Stacescu, 2009. "Information sharing and information acquisition in credit markets," IEW - Working Papers 454, Institute for Empirical Research in Economics - University of Zurich.
    • Handle: RePEc:zur:iewwpx:454
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    References listed on IDEAS

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    2. Gietzen, Thomas, 2016. "The Impact of Credit Information Sharing on Interest Rates," Working Papers on Finance 1612, University of St. Gallen, School of Finance.
    3. Simplice A. Asongu & Nicholas M. Odhiambo, 2021. "Information Asymmetry and Insurance in Africa," Journal of African Business, Taylor & Francis Journals, vol. 22(3), pages 394-410, July.
    4. Dierkes, Maik & Erner, Carsten & Langer, Thomas & Norden, Lars, 2013. "Business credit information sharing and default risk of private firms," Journal of Banking & Finance, Elsevier, vol. 37(8), pages 2867-2878.
    5. Artashes Karapetyan & Bogdan Stacescu, 2014. "Information Sharing and Information Acquisition in Credit Markets," Review of Finance, European Finance Association, vol. 18(4), pages 1583-1615.
    6. Siciliani, Paolo & Eccles, Peter, 2024. "Information disclosure and information acquisition in credit markets," Bank of England working papers 1067, Bank of England.
    7. Giorgio Albareto & Roberto Felici & Enrico Sette, 2016. "Does credit scoring improve the selection of borrowers and credit quality?," Temi di discussione (Economic working papers) 1090, Bank of Italy, Economic Research and International Relations Area.
    8. Beck, Thorsten & Degryse, Hans & De Haas, Ralph & van Horen, Neeltje, 2018. "When arm's length is too far: Relationship banking over the credit cycle," Journal of Financial Economics, Elsevier, vol. 127(1), pages 174-196.
    9. Simplice A. Asongu & Nicholas M. Odhiambo, 2018. "Information asymmetry, financialization, and financial access," International Finance, Wiley Blackwell, vol. 21(3), pages 297-315, December.
    10. Fan, Yaoyao & Jiang, Yuxiang & Jin, Pengcheng & Mai, Yong, 2023. "CEO network centrality and bank risk: Evidence from US Bank holding companies," Journal of Corporate Finance, Elsevier, vol. 83(C).
    11. Kalyvas, Antonios Nikolaos & Mamatzakis, Emmanuel, 2017. "Do creditor rights and information sharing affect the performance of foreign banks?," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 50(C), pages 13-35.
    12. Chu, Yinxiao & Li, Zhao & Wei, Jianxing & Wu, Weixing, 2022. "A tale of two markets: Labor market mobility and bank information sharing," Journal of Economic Dynamics and Control, Elsevier, vol. 141(C).
    13. Berrak Bahadir & Neven Valev, 2021. "Credit information sharing and the shift in bank lending towards households," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(1), pages 60-72, January.
    14. Benedikt Notheisen & Jacob Benjamin Cholewa & Arun Prasad Shanmugam, 2017. "Trading Real-World Assets on Blockchain," Business & Information Systems Engineering: The International Journal of WIRTSCHAFTSINFORMATIK, Springer;Gesellschaft für Informatik e.V. (GI), vol. 59(6), pages 425-440, December.
    15. Meng, Qingbin & Huang, Haozheng & Li, Xinyu & Wang, Song, 2023. "Short-selling and corporate default risk: Evidence from China," International Review of Economics & Finance, Elsevier, vol. 87(C), pages 398-417.
    16. Fredj Fhima & Walid Trabelsi, 2021. "Loan Officer and the Evolution of Bank-SMEs Relationship in Tunisia," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 13(9), pages 1-41, August.
    17. Simplice A. Asongu & Emeride F. Kayo & Vanessa S. Tchamyou & Therese E. Zogo, 2024. "Banking concentration, information sharing and women's political empowerment in developing countries," Working Papers 24/028, European Xtramile Centre of African Studies (EXCAS).
    18. Bertrand, Jérémie & Klein, Paul-Olivier, 2021. "Creditor information registries and relationship lending," International Review of Law and Economics, Elsevier, vol. 65(C).
    19. Laptieva, Nataliia, 2016. "Information sharing and the volume of private credit in transition: Evidence from Ukrainian bank-level panel dataAuthor-Name: Grajzl, Peter," Journal of Comparative Economics, Elsevier, vol. 44(2), pages 434-449.
    20. Lucia Gibilaro & Gianluca Mattarocci, 2021. "Financial Distress and Information Sharing: Evidences from the Italian Credit Register," Risks, MDPI, vol. 9(5), pages 1-12, May.
    21. Prachi Mishra & Nagpurnanand Prabhala & Raghuram G Rajan, 2022. "The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology?," The Review of Financial Studies, Society for Financial Studies, vol. 35(7), pages 3418-3466.
    22. Das Chaudhury, Ratul & Bhattacharya, Sukanta, 2023. "When to seek expert advice? A simple model of borrowers with limited liability," Mathematical Social Sciences, Elsevier, vol. 125(C), pages 113-120.
    23. Notheisen, Benedikt & Weinhardt, Christof, 2019. "The blockchain, plums, and lemons: Information asymmetries & transparency in decentralized markets," Working Paper Series in Economics 130, Karlsruhe Institute of Technology (KIT), Department of Economics and Management.
    24. Diana Bonfim & Qinglei Dai, 2017. "Bank Size and Lending Specialisation," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 46(2), pages 329-380, July.
    25. Diana Bonfim & Gil Nogueira & Steven Ongena, 2016. "Sorry, We're Closed: Loan Conditions When Bank Branches Close and Firms Transfer to Another Bank," Working Papers w201607, Banco de Portugal, Economics and Research Department.

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    More about this item

    Keywords

    Bank competition; information sharing; relationship banking; hard information; soft information;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L13 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Oligopoly and Other Imperfect Markets

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