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Credit Reporting, Relationship Banking, and Loan Repayment


  • We thank Paul Calem, Hans Degryse, Richard Disney, Tullio Jappelli, Marco Pagano, Michael Kosfeld, Ernst Fehr, and three anonymous referees, as well as participants of seminars at the Fed Philadelphia, CSEF Salerno, the Banca D'Italia, the University of Copenhagen, the University of Frankfurt, and Tilburg University for helpful comments. Franziska Heusi provided excellent research assistance. Zehnder gratefully acknowledges financial support by the national center of competence in research on “Financial Valuation and Risk Management.” The national centers in research are managed by the Swiss National Science Foundation on behalf of the federal authorities. The views expressed in this paper do not necessarily reflect those of the Swiss National Bank.


How does information sharing between lenders affect borrowers repayment behavior? We show—in a laboratory credit market—that information sharing increases repayment rates, as borrowers anticipate that a good credit record improves their access to credit. This incentive effect of information sharing is substantial when repayment is not third-party enforceable and lending is dominated by one-shot transactions. If, however, repeat interaction between borrowers and lenders is feasible, the incentive effect of credit reporting is negligible, as bilateral banking relationships discipline borrowers. Information sharing nevertheless affects market outcome by weakening lenders' ability to extract rents from relationships.