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Public Information and Coordination: Evidence from a Credit Registry Expansion


  • Hertzberg is from Columbia Business School; Liberti is from DePaul University and Tilburg University; Paravisini is from Columbia Business School, NBER, and BREAD. We wish to thank Abhijit Banerjee, Patrick Bolton, Philip Bond, Douglas Diamond, Jie Gan, Itay Goldstein, Allaudeen Hameed, Gregory Nini, Mitchell Petersen, Philipp Schnabl, Antoinette Schoar, and seminar participants at Columbia Business School, Kellogg School of Management, World Bank Financial Economics Seminar, Wharton, DePaul University, Chicago Booth School of Business, Chicago Federal Reserve, Tilburg University, University of Amsterdam and Princeton University, as well as conference participants at the CEPR Development Economics Conference, the CEPR European Summer Symposium in Financial Markets, the NBER Corporate Finance Summer Institute, the UNC-Duke Corporate Finance Conference, the New York Federal Reserve Bank/NYU Stern Conference on Financial Intermediation, the Latin American Econometric Society, the Western Finance Association Conference, the Paris Spring Corporate Finance Conference, the Australian National University Finance Summer Camp, and the NYU Conference on Information Frictions in Macroeconomics and Finance.


This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that forced lenders to share negative private assessments about their borrowers. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of other lenders' reaction to the negative news about the firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.

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