Learning About Competitors: Evidence from SME Lending

50 Pages Posted: 1 Aug 2018

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School

Andrew Sutherland

Massachusetts Institute of Technology

Date Written: July 27, 2018

Abstract

This paper estimates the effect of lenders learning about competitors’ contract terms using micro-data from an information sharing platform. Exploiting the staggered entry of lenders into the platform, we find that, upon entry, lenders adjust their terms towards what others are offering. We address two key confounders: unobserved common shocks to fundamentals and endogenous timing of entry into the platform. Lenders’ reaction appears to be driven by a strategic motive to match competitors in order to preserve market share. This strategic channel of information sharing in credit markets operates incremental to more conventional channels, such as the revelation of a borrower’s payment history and creditor runs.

Keywords: information sharing, competition, coordination, credit bureau, corporate loans, information aggregation

Suggested Citation

Darmouni, Olivier and Sutherland, Andrew, Learning About Competitors: Evidence from SME Lending (July 27, 2018). Available at SSRN: https://ssrn.com/abstract=3224340

Olivier Darmouni

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
United States

Andrew Sutherland (Contact Author)

Massachusetts Institute of Technology ( email )

100 Main Street
Cambridge, MA 02142
United States

HOME PAGE: http://https://mitsloan.mit.edu/faculty/directory/andrew-gordon-sutherland

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