Learning about Competitors: Evidence from SME Lending

61 Pages Posted: 11 Dec 2018 Last revised: 18 May 2020

See all articles by Olivier Darmouni

Olivier Darmouni

Columbia University - Columbia Business School

Andrew Sutherland

Massachusetts Institute of Technology

Date Written: May 15, 2020

Abstract

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

Suggested Citation

Darmouni, Olivier and Sutherland, Andrew, Learning about Competitors: Evidence from SME Lending (May 15, 2020). Available at SSRN: https://ssrn.com/abstract=3286425 or http://dx.doi.org/10.2139/ssrn.3286425

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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