Information Acquisition Under Uncertainty in Credit Markets

This article studies information acquisition through investmentin improved risk assessment technology in competitive creditmarkets. A technology has two attributes: its ability to screenin productive borrowers, and its ability to screen out unproductiveborrowers. The two attributes have fundamentally different effectson acquisition incentives and the structure of equilibrium informationalexternalities between lenders. The article also studies howuncertainty associated with the quality of superior technologyaffects information acquisition incentives. Uncertainty influencesinformation acquisition even with risk-neutral banks. Increaseduncertainty may raise or dampen incentives, depending on whetheruncertainty is, respectively, about screening out or screeningin quality.     

Information Sharing in Credit Markets

We present a model with adverse selection where information sharing between lenders arises endogenously. Lenders' incentives to share information about borrowers are positively related to the mobility and heterogeneity of borrowers, to the size of the credit market, and to advances in information technology; such incentives are instead reduced by the fear of competition from potential entrants. In addition, information sharing increases the volume of lending when adverse selection is so severe that safe borrowers drop out of the market. These predictions are supported by international and historical evidence in the context of the consumer credit market.     

Endogenous Information Acquisition with Cournot Competition

This paper studies information production in a model where both entry of analysts and their optimal information quality is endogenous. We show existence of the Bayesian–Nash equilibrium and solve for it in closed form. The model displays rich behavior. In particular, we find that the precision of an individual signal will always be bounded from above by the precision of the prior belief on payoff uncertainty. Furthermore, we give examples that contradict the naive intuition about information acquisition. For instance, we show how a change in the cost structure that makes information cheaper decreases price informativeness, while at the same time market liquidity and the amount of resources society spends on information acquisition can change either way. The model gives a simple, fully rational explanation on why the number of analysts following a stock can be quite large. Endogenizing the cost of information by allowing the manager to choose an optimal informational policy, we find a variety of optima that depend discontinuously on the model parameters. As a consequence, among two similar firms, one may find it optimal to attract many analysts, the other will cooperate with only a few.I am greatly indebted to Antonio Bernardo and Avanidhar Subrahmanyam, whose support, encouragement, insight, and many valuable comments made this paper possible. In addition, I also thank Justin Chan, Sudipto Dasgupta, Jason Hsu, Martin Nielsen, and Elena Sernova, the editor and an anonymous referee.     

Strategic Trading, Liquidity, and Information Acquisition

We study endogenous liquidity trading in a market with long-livedasymmetric information. We distinguish between public information,tractable information that can be acquired, and intractableinformation that cannot be acquired. Besides information asymmetryand noise, the adverse-selection spread depends on the diffusionof intractable information and on the interest rate. With endogenousliquidity trading, efficiency is lower than that implied bynoise-trading models. Liquidity traders benefit from the informationreleased through the insider's trades in spite of their monetarylosses. We study factors that affect the insider's informationacquisition decision, including the amount of intractable information,observability, and information acquisition costs.     

Disruption and Credit Markets

We show that over the past half-century, innovative disruptions were central to understanding corporate defaults. In a given year, industries experiencing abnormally high venture capital or initial public offering activity subsequently see higher default rates, higher segment exits by conglomerates, and higher yields on bonds issued by the firms in these industries. Overall, we find that disruption is a broad phenomenon, negatively affecting incumbent firms across the spectrum of age, valuation, and levers, with the exception of very large and low-leverage firms, in line with our central hypothesis.     

Competition and Collusion in Dealer Markets

This article develops a game-theoretic model to analyze market makers' intertemporal pricing strategies. We show that dealers who adopt noncooperative pricing strategies may set bid-ask spreads above competitive levels. This form of “implicit collusion” differs from explicit collusion, where dealers cooperate to fix prices. Price discreteness or asymmetric information are not required for collusion to occur. Rather, institutional arrangements that restrict access to the order flow are important determinants of the ability to collude because they reduce dealers' incentives to compete on price. Public policy efforts to increase interdealer competition should focus on such restrictions.     

Recent Developments in Credit Markets

We summarize recent developments in the credit derivative markets. We show the role of dependence between individual debtors in portfolio derivatives in a study of implied correlation. The risk of changing dependence structures between stock and bond markets becomes evident in an example of capital structure arbitrage. How credit derivatives can introduce new risks is illustrated by the example of “overlay” in basket derivatives.     

Peer Monitoring and Credit Markets

A major problem for institutional lenders is ensuring that borrowersexercise prudence in the use of the funds so that the likelihoodof repayment is enhanced. One partial solution is peer monitoring:having neighbors who are in a good position to monitor the borrowerbe required to pay a penalty if the borrower goes bankrupt.Peer monitoring is largely responsible for the successful financialperformance of the Grameen Bank of Bangladesh and of similargroup lending programs elsewhere. But peer monitoring has acost. It transfers risk from the bank, which is in a betterposition to bear risk, to the cosigner. In a simple model ofpeer monitoring in a competitive credit market, this articledemonstrates that the transfer of risk leads to an improvementin borrowers' welfare.     

Catastrophic Risk and Credit Markets

We provide a model of the effects of catastrophic risk on real estate financing and prices and demonstrate that insurance market imperfections can restrict the supply of credit for catastrophe-susceptible properties. Using unique micro-level data, we find that earthquake risk decreased commercial real estate bank loan provision by 22% in California properties in the 1990s, with more severe effects in African–American neighborhoods. We show that the 1994 Northridge earthquake had only a short-term disruptive effect. Our basic findings are confirmed for hurricane risk, and our model and empirical work have implications for terrorism and political perils.     

环境信息透明度与企业信用评级——基于债券评级市场的经验证据

基于2008至2015年期间公司债券发行主体的信用评级数据和手工收集的上市公司环境信息数据,本文研究了环境信息透明度对企业信用评级的影响。研究结果显示,公司获得高信用评级的概率与其环境信息透明度显著正相关;环境信息传递出公司的特质风险、盈余持续性以及盈余质量等信息,从而影响评级决策。进一步研究发现,环境信息透明度与企业信用评级之间的正相关关系在内部控制质量高、具有高质量外部审计的公司中更显著。采用工具变量两阶段回归方法、公司固定效应模型以及倾向得分配对方法控制内生性后,上述结论依然成立。此外,本文发现环境信息透明度可通过影响企业信用评级降低公司的债券融资成本,环境信息透明度对企业信用评级和债券融资成本的影响在污染行业中显著更强。上述研究发现有助于拓展环境信息披露对市场中介行为影响的相关研究,对认识非财务信息在资本市场中的作用和推进节能减排提供了重要参考。     

Interest Rates in Trade Credit Markets

All things equal, interest rates should increase with the borrower's risk. And yet, Klapper, Laeven, and Rajan (2012) cannot find such a positive relation in a broad sample of trade credit contracts. We shed some light on this puzzle by arguing that competition between informed and uninformed suppliers weakens the link between the trade credit cost and the borrower's creditworthiness. Our model implies that trade credit rates are more likely to increase with the borrower's risk if suppliers are less profitable, have high cost of funds, or sell inputs to firms plagued by moral hazard and financial distress.     

Risk Mutualization and Competition in Insurance Markets

The aim of this paper is to analyze the impact of mutual firms on competition in the insurance market. We distinguish two actors in this market: mutual firms, which belong to their pooled members, and traditional companies, which belong to their shareholders. Our approach differs from the literature by one crucial assumption: the expected utility of the consumers depends on the size of their insurance firm, which generates network externalities in this market. Thus, the choice of a contract results in a trade-off between the premium level and the probability of that premium being ex-post adjusted. The optimal contract offered by a mutual firm involves a systematic ex-post adjustment (negative or positive), while the contracts a company offers imply a fixed premium that is possibly negatively adjusted at the end of the contractual period. In an oligopoly game, we show that three types of configurations are possible at equilibrium: either one mutual firm or insurance company is active, or a mixed structure emerges in which two or more companies share the market with or without a mutual firm.     

Asset Measurement in Imperfect Credit Markets

How should a firm measure a productive asset used as collateral? To answer this question, we develop a model in which firms borrow funds subject to collateral constraints. We characterize the qualities of optimal asset measurements and analyze their interactions with financing needs, collateral constraints, and interest rates. Because of real effects, complete transparency would reduce contracting efficiency and, hence, the measurement must be suitably adapted to credit conditions. The optimal measurement is asymmetric and reports precise information about high collateral values if credit frictions are low, but the reverse if credit frictions are high. Tighter credit market conditions may lead to more opaque measurements and increased investment, in the form of inefficient continuations.     

信息不对称下信贷市场的惜贷与挤出效应

通过收集和处理借贷平台日常运行中形成的真实数据,本文发现信息不对称条件下信贷市场逆向选择会导致市场萎缩的两类效应;其一为"惜贷"效应:随着信息不对称程度的加深,借贷双方最终达成的合约额度降低和交易匹配时间延长,市场的有效供给萎缩;其二为"挤出"效应:随着信息不对称程度的恶化,借贷双方合约的利率将会升高、期限缩短,市场的...     

Bank Competition and Credit Standards

This article offers an explanation for the substantial variationof credit standards and price competition among banks over thebusiness cycle. As the economic outlook improves, the averagedefault probabilities of borrowers decline. This affects theprofitability of screening and causes bank screening intensityto display an inverse U-shape as a function of economic prospects.Low screening activity in expansions creates intense price competitionamong lenders and loans are extended to lower-quality borrowers.As the economic outlook worsens, price competition diminishes,and credit standards tighten significantly. Deposit insurancemay contribute to the countercyclical variation of credit standards.     

银行信贷管理必须从战略高度出发--访中国工商银行信贷管理部总经理魏国雄

近期,各家银行对外公布了上半年的运转情况和下半年的总体规划,其中有关信贷的一些主要数据引起了社会的普遍关注。在宏观调控偏紧的情况下,银行信贷应该如何保持均衡的发展?对此魏国雄表示,信贷决策人员必须具备优秀的战略眼光和冷静的思维方式。     

The Thai Rural Credit System: Public Subsidies, Private Information, and Segmented Markets

Thailand has sought to increase farmers' access to credit bygovernment intervention. In 1966 it created a government agriculturalbank to lend solely to farm households, and beginning in thelate 1970s it required commercial banks to lend heavily in therural sector, either directly or by making deposits in the agriculturalbank. The result was an enormous expansion of credit in therural sector. But because formal lenders were either unableor unwilling to solve the information problems involved in thebroad range of rural credit transactions, the informal creditsector (which charged interest rates many times higher thanthe formal sector) continued to thrive. Using household surveysand surveys of moneylenders, this article provides a detailedanalysis of the ways in which lenders in the informal sectorhave solved the information problems of providing credit. Theauthors argue that the informal sector is competitive, and thathigh interest rates reflect high information costs, not thescarcity of funds.     

Strategic Price Discrimination in Compulsory Insurance Markets

This paper considers price discrimination when competing firms do not observe a customer’s type but only some other variable correlated to it. This is a typical situation in many insurance markets—such as motor insurance—where it is also often the case that insurance is compulsory. We characterise the equilibria and their welfare properties under various price regimes. We show that discrimination based on immutable characteristics such as gender is a dominant strategy, either when firms offer policies at a fixed price or when they charge according to some consumption variable that is correlated to costs. In the latter case, gender discrimination can be an outcome of strategic interaction alone in situations where it would not be adopted by a monopolist. Strategic price discrimination may also increase cross subsidies between types, contrary to expectations.JEL Classification No.: L13, G22     

Competition,Loan Rates,and Information Dispersion in Nonprofit and For‐Profit Microcredit Markets

We describe the competitive environment of microcredit markets globally and we study the effects of competition on loan rates of microfinance institutions (MFIs). We use a new database from rating agencies, covering 379 for‐profit and nonprofit MFIs in 67 countries over 2002–2008. Controlling for interest rate ceilings and other country‐specific factors, we first find that nonprofits are relatively insensitive to industry‐wide concentration changes, while for‐profits charge significantly lower rates in less concentrated markets. Second, we find spillover effects between the for‐profit and nonprofit segments. Third, we show that the effects of concentration are consistent with an information dispersion mechanism.