Learning about Competitors: Evidence from SME Lending
61 Pages Posted: 11 Dec 2018 Last revised: 18 May 2020
Date Written: May 15, 2020
We study how small and medium enterprise (SME) lenders react to information about their competitors’ contracting decisions. To isolate this learning from lenders’ common reactions to unobserved shocks to fundamentals, we exploit the staggered entry of lenders into an information sharing platform. Upon entering, lenders adjust their contract terms toward what others offer. This reaction is mediated by the distribution of market shares: lenders with higher shares or that operate in concentrated markets react less. Thus, contract terms are shaped not only by borrower or lender fundamentals but also by the interaction between information availability and competition.
Keywords: learning, information sharing, market structure, corporate loans, SME lending, loan maturity
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