The Role of Comprehensive Information Sharing in Credit Market: Theoretical Analysis and New Evidence from the European Union

Abstract

This paper investigates the effect of the comprehensive information sharing on aggregate credit volume and the default ratio. Firstly, we utilize a three-stage game model developed by Dell'Ariccia and Marquez (2006) to illustrate that the comprehensive information sharing would change the credit resource allocation and produce negative "composition effects" stated by Jappelli and Pagano (2005). Then we use European Union (EU) data to test these theoretical implications. We find that when the information sharing system develops to a relatively high level, comprehensive information sharing improvements, for both the width and depth, are associated with the rise in macro credit access but also the aggregate default risk. We further find that the macro-consequences of variations in information sharing just differ in OECD and non-OECD group in EU countries. For OECD countries, the negative "composition effects" mainly arise from the increase in the width of information sharing while these effects are correlated with both the rise in depth and width indicators for non-OECD countries.