DP11699 The Effects of Creditor Rights and Bank Information Sharing on Borrower Behavior: Theory and Evidence

Author(s): John H. Boyd, Hendrik Hakenes, Amanda Rae Heitz
Publication Date: December 2016
Keyword(s): Creditor rights, information sharing
JEL(s): G21, G28, L15
Programme Areas: Financial Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=11699

This paper provides a comprehensive theoretical and empirical analysis of "creditor rights" and "information sharing" throughout over 1.8 million public and private firms in Europe. We show that many of the outcomes associated with greater levels of creditor rights can be obtained with higher information sharing between banks. Both theory and empirics show that creditor rights and information sharing are associated with greater firm leverage, lower profitability, as well as greater distance to default. Moreover, both theory and empirics find that creditor rights and information sharing are robust substitutes. Our analysis suggests that poor creditor rights, which tend to be sticky over time, can be substituted by improved information sharing.