Credit information sharing and investment efficiency: Cross-country evidence

Credit information sharing allows creditors to obtain borrowers' relevant credit information, and it can improve borrowers' investment outcomes that are funded by debt. Using reforms to European countries' public credit registries (PCRs) to capture mandated information sharing among creditors, we examine the impact of such sharing on firms' investment efficiency. We find that information sharing enhances firms' investment efficiency, which we measure by their investment-q sensitivity. This finding is consistent with credit information sharing enabling creditors to better screen borrowers to mitigate adverse selection and enhancing borrower discipline to avoid a bad credit record, which leads to the borrower making more efficient investments. We also document that the information sharing effect is more pronounced when firms rely more on debt financing, when the shared credit information is more accessible, when firms' information environment is more opaque, and when there is a greater information monopoly in the banking system. We offer supplementary evidence that the effect is also more salient when PCRs have characteristics that suggest more effective credit information sharing. Overall, our paper offers new insight into whether and how information sharing in credit markets enhances firms' investment efficiency. More broadly, it highlights how making more borrower information available to creditors can have important economic spillover effects on firm outcomes.