Information sharing and information acquisition in credit markets

Artashes Karapetyan and Bogdan Stacescu

No 454, IEW - Working Papers from Institute for Empirical Research in Economics - University of Zurich

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.

Keywords: Bank competition; information sharing; relationship banking; hard information; soft information (search for similar items in EconPapers)
JEL-codes: G21 L13 (search for similar items in EconPapers)
Date: 2009-11
New Economics Papers: this item is included in nep-ban and nep-cta
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

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Related works:
Journal Article: Information Sharing and Information Acquisition in Credit Markets (2014)
Working Paper: Information sharing and information acquisition in credit markets (2010)
Working Paper: Information Sharing and Information Acqusition in Credit Markets (2009)
Working Paper: Information Sharing and Information Acqusition in Credit Markets (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:zur:iewwpx:454

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