Measuring The Importance Of Information In Lending Decisions [Study]

It’s pretty clear that giving banks less information about potential borrowers makes lending riskier, but you don’t get many opportunities to measure the effect because there are so many competing factors that go into assessing a firm’s credit worthiness. The State Bank of Pakistan created an opportunity to study the effect in the real world when it stopped publishing certain types of credit information, creating a natural experiment where different banks had different levels of information about Pakistani companies so that changes in lending behavior could be observed. In their paper How Public Information Affects Asymmetrically Informed Lenders: Evidence from…