Information Asymmetry, External Certification, and the Cost of Bank Debt

Andrea Bellucci, Alexander Borisov (), Germana Giombini and Alberto Zazzaro ()
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Alexander Borisov: Lindner College of Business, University of Cincinnati and MoFiR

No 177, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper examines how the cost of bank debt reflects public information about borrower quality, and whether such information complements or substitutes the private information of banks. Using a sample of small business loans, and the award of a competitive public subsidy as an observable positive signal of external certification, we find that a certification is associated with a lower cost of debt for the recipients if the amount of private information of the lender is low. As the bank accumulates more information over the course of the lending relationship with a borrower, public information loses importance and no longer has a significant effect. Our results highlight a potential positive effect of external certification, and suggest that public and private information can be substitutes in the pricing of bank debt.

Keywords: Information; Financial Contracting; Interest rate; SMEs Financing (search for similar items in EconPapers)
JEL-codes: D21 D83 G21 G30 L11 (search for similar items in EconPapers)
Pages: 39
Date: 2022-11
New Economics Papers: this item is included in nep-ban and nep-cfn
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http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir177.pdf First version, 2022 (application/pdf)

Related works:
Journal Article: Information asymmetry, external certification, and the cost of bank debt (2023)
Working Paper: Information Asymmetry, External Certification, and the Cost of Bank Debt (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:177

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