Leverage dynamics and credit quality

• 成果类型: Article
• 署名作者: Ordonez, Guillermo; Perez-Reyna, David; Yogo, Motohiro
• 署名单位: University of Pennsylvania; National Bureau of Economic Research; Universidad de los Andes (Colombia); Princeton University
• 刊物名称: JOURNAL OF ECONOMIC THEORY
• ISSN/ISSBN: 0022-0531
• DOI: 10.1016/j.jet.2019.06.001
• 发表日期: 2019
• 页码: 183-212
• 关键词: Adverse selection; collateral; Credit score; reputation; signaling

摘要

We study a dynamic model of collateralized credit markets with asymmetric information, which allows for a rich set of signaling strategies based on the path of debt and repayment. Whether credit history reveals private information about credit quality depends on the degree of uncertainty in collateral value. When uncertainty is low, good borrowers fully and costlessly separate by deleveraging, that is borrowing a sufficiently high amount such that subsequent repayment reveals the presence of unobservable income. When uncertainty is higher, good borrowers pay an adverse selection cost through a higher interest rate because bad borrowers could default, and asymmetric information is not always resolved. (C) 2019 Elsevier Inc. All rights reserved.