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Information externalities in the credit market and the spell of credit rationing

Ugo Albertazzi, Margherita Bottero and Gabriele Sene

Journal of Financial Intermediation, 2017, vol. 30, issue C, 61-70

Abstract: We present the first empirical study of loan searching strategies and loan granting decisions in a context where banks observe whether applicants have unsuccessfully applied for credit to other lenders in the past. Our identification strategy benefits from the use of granular data on loan applications and exploits the fact that evaluating lenders observe only the rejections received by a borrower up to six months before the current application. We document that past rejections diminish the probability of approval and increase the probability that a loan search is interrupted.

Keywords: Sequential lending decisions; Credit supply; Winner’s curse; Informational spillover (search for similar items in EconPapers)
JEL-codes: E51 G21 G28 (search for similar items in EconPapers)
Date: 2017
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Handle: RePEc:eee:jfinin:v:30:y:2017:i:c:p:61-70