Competition and Strategic Information Acquisition in Credit Markets
Abstract
We investigate the interaction between banks’ use of information acquisition as a strategic tool and their role in promoting the efficiency of credit markets when a bank’s ability to gather information varies with its distance to the borrower. We show that banks acquire proprietary information both to soften lending competition and to extend their market share. As competition increases, investments in information acquisition fall, leading to lower interest rates but also to less efficient lending decisions. Consistent with the recent wave of bank acquisitions, we also find that merging for informational reasons with a competitor is an optimal response to industry consolidation.
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The information hypothesis suggests an inverse relationship between bank competition and financial inclusion.
“The information hypothesis suggests an inverse relationship between bank competition and financial inclusion.”
From Financial inclusion, bank competition and economic growth in Africa (2021) · cites this paper as Hauswald & Marques 2006
Competition reduces banks' incentives to screen loan applicants ex ante because of information externalities.
“However, competition reduces the banks' incentives to screen their loan applicants' ex ante because of information externalities (Hauswald & Marques 2006).”
From Financial inclusion, bank competition and economic growth in Africa (2021) · cites this paper as Hauswald & Marques 2006
Cites
Financial intermediation and delegated monitoring
Diamond, D. W. (1984) · The Review of Economic Studies · doi:10.2307/2297430 · Cited by 8,476 · see citing works
Can Relationship Banking Survive Competition?
Boot, A. W. A., & Thakor, A. V. (2000) · The Journal of Finance · doi:10.1111/0022-1082.00223 · Cited by 1,590 · see citing works
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Local Bank, Digital Financial Inclusion and SME Financing Constraints: Empirical Evidence from China
Lu, Z., Wu, J., Li, H., & Nguyen, D. K. (2022) · Emerging Markets Finance and Trade · doi:10.1080/1540496x.2021.1923477 · Cited by 274 · see citing works
How local is local? Evidence from bank competition and corporate innovation in U.S.
Tian, L., & Han, L. (2019) · Review of Quantitative Finance and Accounting · doi:10.1007/s11156-018-0710-0 · Cited by 20 · see citing works
Financial inclusion, bank competition and economic growth in Africa
Chinoda, T., & Mashamba, T. (2021) · Journal of Economic and Financial Sciences · doi:10.4102/jef.v14i1.649 · Cited by 17 · see citing works
- Authors
- Hauswald, R., & Marquez, R.
- Affiliations
- American University (US)
- Arizona State University (US)
- Corresponding author
- Hauswald, Robert
- Venue
- Review of Financial Studies
- Publisher
- Oxford University Press (OUP)
- Published
- 2006
- Volume
- 19
- Issue
- 3
- Pages
- 967-1000
- ISSN
- 0893-9454 (ISSN-L)
- 1465-7368
- OpenAlex
- W3123555426
- Cited by
- 766
- References
- 2
- Citations by year
- 2026: 22 · 2025: 34 · 2024: 49 · 2023: 49 · 2022: 45 · 2021: 46 · 2020: 34 · 2019: 45 · 2018: 46 · 2017: 36 · 2016: 32 · 2015: 40 · 2014: 37 · 2013: 38 · 2012: 39
- FWCI
- 56.52
- Type
- journal article
- Language
- en
- Open access
- closed
- Locations
- Review of Financial Studies (publishedVersion)
- RePEc: Research Papers in Economics (submittedVersion)
- Topics
- Social Sciences › Economics, Econometrics and Finance › Finance › Banking stability, regulation, efficiency
- Social Sciences › Economics, Econometrics and Finance › Economics and Econometrics › Merger and Competition Analysis
- Social Sciences › Business, Management and Accounting › Accounting › Corporate Finance and Governance
- Keywords
- credit markets, bank competition, bank mergers, bank acquisitions, industry consolidation, interest rates, lending efficiency, proprietary information, bank market share
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