Does information sharing reduce the role of collateral as a screening device?
Journal article, Peer reviewed
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Date
2014Metadata
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Abstract
Information sharing and collateral are both devices that help banks reduce the cost of adverse selection.
We examine whether they are likely to be used as substitutes (information sharing reduces the need for
collateral) or complements. We show that information sharing via a credit bureaus and registers may
increase, rather than decrease, the role of collateral: it can be required in loans to high-risk borrowers
in cases when it is not in the absence of information sharing. Higher adverse selection makes the use
of collateral more likely both with and without information sharing. Our results are in line with recent
empirical evidence.
Description
This is the authors’ accepted, refereed and final manuscript to the article. Publisher’s version available at http://dx.doi.org/10.1016/j.jbankfin.2014.02.010