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

Andrea Bellucci (), Alexander Borisov (), Germana Giombini and Alberto Zazzaro ()
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Andrea Bellucci: Università degli Studi dell’Insubria and MoFiR.
Alexander Borisov: University of Cincinnati and MoFiR.

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

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)
Date: 2022-11-28
New Economics Papers: this item is included in nep-ban
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https://www.csef.it/WP/wp657.pdf (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:sef:csefwp:657

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