Sharing information on lending decisions: an empirical assessment

Ugo Albertazzi, Margherita Bottero and Gabriele Sene ()
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Gabriele Sene: Bank of Italy

No 980, Temi di discussione (Economic working papers) from Bank of Italy, Economic Research and International Relations Area

Abstract: We present the first empirical study of information spillover and signalling on loan search and its outcomes in a setting where a bank observes whether a loan applicant has already been rejected by other lenders. We do so by taking advantage of the fact that Italy�s Central Credit Register discloses such information. The results show that disclosing information on past rejections negatively affects the probability of continuing a loan search. At the same time, the information on former rejections is associated with a higher probability of being funded for borrowers who are not discouraged and continue the search, provided they are not opaque. With the aid of a theoretical model, we show that banks interpret the information on previous rejections as a signal of unobservable quality for the average borrower but not for more opaque borrowers, whose past rejections negatively affect the outcome of later applications. We also show that banks differ in the extent to which they rely on this information, in a way that at least partly reflects the different informational content that this signal carries for them.

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: 2014-10
New Economics Papers: this item is included in nep-cfn and nep-mac
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:bdi:wptemi:td_980_14

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