informationsharing,lendinganddefaults cross-countryevidence.pdf

Journal of Banking Finance 26 (2002) 2017–2045 /locate/econbase Information sharing, lending and defaults: Cross-country evidence Tullio Jappelli a,b,*, Marco Pagano a,b a CSEF, Universitaa di Salerno, 84084 Fisciano, Salerno, Italy b CEPR, London, UK Received 15 February 2000; accepted March 200 Abstract Theory predicts that information sharing among lenders attenuates adverse selection and moral hazard, and can therefore increase lending and reduce default rates. Using a new, pur- pose-built data set on private credit bureaus and public credit registers, we find that bank lend- ing is higher and credit risk is lower in countries where lenders share information, regardless of the private or public nature of the information sharing mechanism. We also find that public intervention is more likely where private arrangements have not arisen spontaneously and creditor rights are poorly protected. 2002 Elsevier Science B.V. All rights reserved. JEL classification: D82; G21; G28 Keywords: Information sharing; Credit market; Default rate 1. Introduction A large body of literature shows that asymmetric information between borrowers and lenders can prevent the efficient allocation of credit. Lenders are often unable to observe the characteristics of borrowers, including the riskiness of their investment projects, and this induces adverse selection problems. Lenders may also be unable to control the actions that borrowers take after receiving a loan. A borrower may relax his effort to prevent default or hide the proceeds of his investment to keep from * Corresponding author. Fax: 39-089-963169. E-mail address: tullioj@tin.it (