The Impact of Information Sharing on the Use of Collateral versus Guarantees - Supplementary Article

Jul 19, 2026

This study uses contract-level data from Bosnia and Herzegovina to evaluate how a newly implemented credit registry affects lenders’ reliance on borrower collateral versus third-party guarantees. For first-time borrowers, mandatory information sharing shifts requirements from collateral toward guarantees, especially for riskier borrowers. For repeat borrowers, collateral and guarantee requirements both fall with longer lending relationships. Results indicate information sharing can reduce adverse selection and mitigate hold-up risks across borrower types.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages6

Reading Time15 min

Abstract

Introduction

Collateral versus guarantees in theory

Motivation for studying credit registry effects

Data

Credit registry coverage and reporting requirements

Pub lic Disclosure Authorized Pub lic Disclosure Authorized The World Bank Economic Review, 34(Supplement), 2020, S14–S19 doi: 10.1093/wber/lhz011 Supplementary Article The Impact of Information Sharing on the Use of Collateral versus Guarantees Ralph De Haas and Matteo Millone Abstract This study exploits contract-level data from Bosnia and Herzegovina to assess the impact of a new credit registry on the use of borrower collateral versus third-party guarantees. Among first-time borrowers, the introduction of mandatory information sharing leads to a shift from collateral to guarantees, in particular for riskier borrowers. Among repeat borrowers, both collateral and guarantee requirements decline in proportion to the length of the lending relationship. These results suggest that information sharing can both reduce adverse selection among new borrowers and hold-up problems among repeat borrowers. JEL classification: D04, D82, G21, G28 Keywords: information sharing, collateral, guarantees 1. Introduction Most small-business lenders require borrowers to pledge real estate, moveable assets, or some other form of collateral. Economic theory suggests two reasons for doing so. First, when borrower quality is unobservable, safe borrowers may pledge collateral to signal their quality (Besanko and Thakor 1987) . Second, when quality is observable, collateral boosts borrower effort and discourages strategic default (Boot, Thakor, and Udell 1991). If the first mechanism dominates, riskier borrowers put up less collateral. If the second effect dominates, they pledge more. Not all potential borrowers have assets to pledge, and even low-risk borrowers can therefore be credit constrained. For this reason many lenders accept not only borrower collateral but also third-party guarantees, where a guarantor or co-signer underwrites the loan. While such social collateral fulfills a similar role as borrower collateral – mitigating adverse selection and moral hazard – there are also differences.1 Unlike “passive” assets, guarantors actively monitor borrowers to ensure repayment (Banerjee, Besley, and Guinnane 1994 ) and such monitoring is often leveraged by the threat of social sanctions (Bond and Rai 2008). This makes guarantees particularly effective in alleviating moral hazard (Pozzolo 2004). Moreover, Ralph De Haas (corresponding author) is the Director of Research at the European Bank for Reconstruction and Development (EBRD) and a Associate Professor at Tilburg University; his email address is [dehaasr@ebrd.com](dehaasr@ebrd.com); Matteo Millone isan Assistant Professor at the VU University Amsterdam; his email address [is m.millone@vu.nl. The](is m.millone@vu.nl. The) authors thank Borislav Petric and Igor Duspara for their kind help with accessing EKI data. The views expressed are those of the authors and not necessarily of the EBRD. Financial support from the Bocconi Centre for Applied Research in Finance (Baffi CAREFIN) is gratefully acknowledged. 1 Besanko and Thakor (1987) show theoretically that co-signers reduce credit rationing for borrowers without sufficient collateral. © The Author(s) 2019 . Published by Oxford University Press on behalf of the International Bank for Reconstruction and Development / THE WORLD BANK. All rights reserved. For permissions, please e-mail: [journals.permissions@oup.com](journals.permissions@oup.com) Downloaded from [https://academic.oup.com/wber/article/34/Supplement_1/S14/5651210 by guest on 23 June 2021](https://academic.oup.com/wber/article/34/Supplement_1/S14/5651210 by guest on 23 June 2021) guarantees entail a claim on the entire wealth of the guarantor. Compared with borrower collateral, which only gives a (priority) claim on specific assets, their value is therefore less correlated with the underlying business. Notwithstanding the widespread use of guarantees, empirical evidence on their role relative to borrower collateral remains scarce. This short paper investig

FAQs

What change does the credit registry introduce in the studied setting?

The registry requires lenders to share borrower information, increasing public information about loan applicants.

How does information sharing affect first-time borrowers’ use of collateral and guarantees?

Among first-time borrowers, mandatory information sharing shifts reliance from collateral to third-party guarantees, particularly for riskier borrower categories.

What happens for repeat borrowers when lending relationships are longer?

For repeat borrowers, both collateral and guarantee requirements decline as the length of the lending relationship increases.

Jul 19, 2026

Upload by Seraphina