Information Sharing and Rating Manipulation: Evidence from a Credit Registry Expansion

M. Giannetti, Jose Maria Liberti, Jason Sturgess

Research output: Working paper

Abstract

We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of the Argentinean public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers to avoid creditor runs. Our results can explain the limited effectiveness of public credit registries and cast doubt on the use of credit ratings in reducing information asymmetry.
Original languageEnglish (US)
PublisherSocial Science Research Network (SSRN)
Number of pages56
StatePublished - Apr 18 2016

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Rating
Manipulation
Credit
Information sharing
Registry
Credit rating
Rent
Information disclosure
Private information
Information asymmetry
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Cite this

Giannetti, M., Liberti, J. M., & Sturgess, J. (2016). Information Sharing and Rating Manipulation: Evidence from a Credit Registry Expansion. Social Science Research Network (SSRN).
Giannetti, M. ; Liberti, Jose Maria ; Sturgess, Jason. / Information Sharing and Rating Manipulation : Evidence from a Credit Registry Expansion. Social Science Research Network (SSRN), 2016.
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abstract = "We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of the Argentinean public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers to avoid creditor runs. Our results can explain the limited effectiveness of public credit registries and cast doubt on the use of credit ratings in reducing information asymmetry.",
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Giannetti, M, Liberti, JM & Sturgess, J 2016 'Information Sharing and Rating Manipulation: Evidence from a Credit Registry Expansion' Social Science Research Network (SSRN).

Information Sharing and Rating Manipulation : Evidence from a Credit Registry Expansion. / Giannetti, M.; Liberti, Jose Maria; Sturgess, Jason.

Social Science Research Network (SSRN), 2016.

Research output: Working paper

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AU - Liberti, Jose Maria

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N2 - We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of the Argentinean public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers to avoid creditor runs. Our results can explain the limited effectiveness of public credit registries and cast doubt on the use of credit ratings in reducing information asymmetry.

AB - We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of the Argentinean public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers to avoid creditor runs. Our results can explain the limited effectiveness of public credit registries and cast doubt on the use of credit ratings in reducing information asymmetry.

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Giannetti M, Liberti JM, Sturgess J. Information Sharing and Rating Manipulation: Evidence from a Credit Registry Expansion. Social Science Research Network (SSRN). 2016 Apr 18.