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Public information and coordination: evidence from a credit registry expansion

Hertzberg, Andrew, Liberti, Jose Maria and Paravisini, Daniel (2011) Public information and coordination: evidence from a credit registry expansion. The Journal of Finance, 66 (2). pp. 379-412. ISSN 0022-1082

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Abstract

This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders’ joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders’ reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.

Item Type: Article
Official URL: http://www.afajof.org/
Additional Information: © 2011 The American Finance Association
Library of Congress subject classification: H Social Sciences > HB Economic Theory
H Social Sciences > HG Finance
Journal of Economic Literature Classification System: D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D80 - General
D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D82 - Asymmetric and Private Information
G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
G - Financial Economics > G3 - Corporate Finance and Governance > G38 - Government Policy and Regulation
Sets: Departments > Finance
Collections > Economists Online
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 16 Apr 2012 12:50
URL: http://eprints.lse.ac.uk/43112/

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