Details
| Original language | English |
|---|---|
| Pages (from-to) | 2867-2878 |
| Number of pages | 12 |
| Journal | Journal of Banking and Finance |
| Volume | 37 |
| Issue number | 8 |
| Publication status | Published - 26 Apr 2013 |
| Externally published | Yes |
Abstract
We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms' payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher the smaller the firms and the lower their distance from the local credit bureau office. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.
Keywords
- Asymmetric information, Credit bureau, Credit risk, Hard and soft information, Private firms
ASJC Scopus subject areas
- Economics, Econometrics and Finance(all)
- Finance
- Economics, Econometrics and Finance(all)
- Economics and Econometrics
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In: Journal of Banking and Finance, Vol. 37, No. 8, 26.04.2013, p. 2867-2878.
Research output: Contribution to journal › Article › Research › peer review
}
TY - JOUR
T1 - Business credit information sharing and default risk of private firms
AU - Dierkes, Maik
AU - Erner, Carsten
AU - Langer, Thomas
AU - Norden, Lars
PY - 2013/4/26
Y1 - 2013/4/26
N2 - We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms' payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher the smaller the firms and the lower their distance from the local credit bureau office. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.
AB - We investigate whether and how business credit information sharing helps to better assess the default risk of private firms. Private firms represent an ideal testing ground because they are smaller, more informationally opaque, riskier, and more dependent on trade credit and bank loans than public firms. Based on a representative panel dataset that comprises private firms from all major industries, we find that business credit information sharing substantially improves the quality of default predictions. The improvement is stronger for older firms and those with limited liability, and depends on the sharing of firms' payment history and the number of firms covered by the local credit bureau office. The value of soft business credit information is higher the smaller the firms and the lower their distance from the local credit bureau office. Furthermore, in spatial and industry analyses we show that the higher the value of business credit information the lower the realized default rates. Our study highlights the channel through which business credit information sharing adds value and the factors that influence its strength.
KW - Asymmetric information
KW - Credit bureau
KW - Credit risk
KW - Hard and soft information
KW - Private firms
UR - http://www.scopus.com/inward/record.url?scp=84878644048&partnerID=8YFLogxK
U2 - 10.1016/j.jbankfin.2013.03.018
DO - 10.1016/j.jbankfin.2013.03.018
M3 - Article
AN - SCOPUS:84878644048
VL - 37
SP - 2867
EP - 2878
JO - Journal of Banking and Finance
JF - Journal of Banking and Finance
SN - 0378-4266
IS - 8
ER -