Credit information sharing and non‐performing loans: The moderating role of creditor rights protection

Abstract

This study uses data from 132 countries to investigate the effect of credit information sharing on non‐performing loans (NPLs) as well as whether the effect is sensitive to creditor rights protection. The results show that credit information sharing improves NPLs, while creditor rights protection worsens NPLs. Generally, we observe that in the presence of creditor rights protection, the positive impact of credit information sharing on NPLs is higher. We also observe that in the presence of credit information sharing, creditor rights protection reduces NPLs. We, therefore, argue that there is complementary effect of credit information sharing and creditor rights protection on NPLs in the study countries. Further analysis involving breaking the data into income groups shows that credit information sharing slows down NPLs in high income, upper‐middle income and lower‐middle income countries. It does not significantly impact NPLs in low‐income countries.

Legal cost of contract enforcement and nonperforming loans: Is credit information sharing relevant?

“…This implies that an improvement in credit information sharing is associated with a fall in the volume of NPLs. These findings are consistent with a priori expectations and support the assertion that when credit information bureaus (public or private) work effectively, information sharing enables lenders to avoid borrowers with questionable credit histories (Adusei & Adeleye, 2020).…”

“…Since the existing body of relevant literature is bereft of this knowledge, it represents another contribution of this study to knowledge. Fourth, evidence that credit information sharing constrains NPLs deepens the existing literature (Adusei & Adeleye, 2020) and accentuates the importance of credit information sharing schemes in the study countries. The rest of the paper is as follows: The next section reviews theoretical and empirical literature followed by the methods section.…”

“…To determine whether the impact of legal costs on NPLs is influenced by the level of credit information sharing which addresses the second question, we include an interaction term ( ) in the model and Equation () modifies to: Note the sign of the coefficient of the interaction term; gauges if the interaction of legal costs with credit information sharing increases or alters the impact of legal costs on NPLs. The overall effect of LEGAL on NPLs is computed as follows: This study improves Adusei and Adeleye (2020, 2021) by evaluating Equation at the mean, minimum, and maximum values of to ascertain the extent to which impacts at different levels of . Following the analytical approach of Adusei and Adeleye (2020, 2021), Adeleye and Eboagu (2019), and Adeleye et al (2020), Equations () and () are subsequently modified to accommodate analyses by income groups and addresses the third question.…”

“…The overall effect of LEGAL on NPLs is computed as follows: This study improves Adusei and Adeleye (2020, 2021) by evaluating Equation at the mean, minimum, and maximum values of to ascertain the extent to which impacts at different levels of . Following the analytical approach of Adusei and Adeleye (2020, 2021), Adeleye and Eboagu (2019), and Adeleye et al (2020), Equations () and () are subsequently modified to accommodate analyses by income groups and addresses the third question.…”

Effect of capital flows on financial stability in middle-income countries

“…The elasticities range from −0.051 to −0.165 with outward FDI having the largest elasticity. These suggest that capital flows reduce the volume of non-performing loans in these economies (Adusei and Adeleye, 2020; Adusei et al , 2020). On the control variables, the inflation rate shows a consistent and statistically negative relation to financial stability.…”