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Publications
Publications
  • 2020
  • Working Paper

The Effects of Information on Credit Market Competition: Evidence from Credit Cards

By: C. Fritz Foley, Agustin Hurtado, Andres Liberman and Alberto Sepulveda
  • Format:Print
  • | Language:English
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Abstract

We show empirically that public credit information increases competition in credit markets. We access data that cover all credit card borrowers in Chile and include details about relationship borrowers have with each lender. We exploit a natural experiment whereby a non-bank lender’s portfolio was sold to a bank. Because of this transaction, the lender’s borrowers, who were previously not identifiable unless in default, become observable by banks through the credit bureau but remain unobservable to other non-bank lenders. Using a difference-in-differences strategy, we find that after the transaction the lender’s borrowers receive higher credit limits from other banks relative to other non-bank borrowers. This result is mediated by individuals whose predicted probability of bank default drops as a result of the change to banks’ information set. After the transaction, the lender shifts originations to safer borrowers with higher initial limits, a result that is consistent with cross-sectional evidence that banks tend to lend to safer borrowers. Our results imply that by increasing competition, public credit information can reduce lenders’ incentive to “learn by lending”, potentially excluding riskier populations from access to credit.

Keywords

Consumer Credit; Financial Intermediaries; Credit; Information; Competition; Credit Cards; Financial Institutions

Citation

Foley, C. Fritz, Agustin Hurtado, Andres Liberman, and Alberto Sepulveda. "The Effects of Information on Credit Market Competition: Evidence from Credit Cards." Working Paper, February 2020.
  • SSRN

About The Author

C. Fritz Foley

Finance
→More Publications

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More from the Authors
  • AMC: The Zero Revenue Case By: C. Fritz Foley and Donal O'Cofaigh
  • AB InBev: Brewing Up Forecasts during COVID-19 By: Mark Egan and C. Fritz Foley
  • AB InBev: Brewing Up Forecasts during COVID-19 By: Mark Egan, C. Fritz Foley, Esel Cekin and Emilie Billaud
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