Review of Financial Studies Vol. 30 No. 9 2017
Information Sharing and Rating Manipulation
Abstract
We show that banks manipulate borrowers' credit ratings before sharing them with competing banks. Using a unique feature on the timing of information disclosure of a public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high-quality borrowers for which they have positive private information to protect their informational rents. Banks also upgrade low-quality borrowers with multiple lenders to avoid creditor runs. Our results suggest that credit ratings manipulation limits the positive effects of credit registries' information disclosure on credit allocation.
- Volume
- 30
- Issue
- 9
- Pages
- 3269-3304
- Sources
- bibtex:phds-export.bib