Does Credit Information Sharing Benefit Firm Innovation?

We investigate the effect of credit information sharing among lenders on borrowers’ innovation activities. Public credit registries play an important role in credit information sharing in many countries. Using the staggered introduction of public credit registries across different countries and an international firm-patent dataset, we find that credit information sharing is positively associated with firms’ innovation outcomes, especially in highly innovative sectors and industries that depend on external financing. This finding is consistent with the notion that the institutional features that reduce information asymmetry between firms and their creditors can promote firms’ success by easing financing frictions. We find that the positive effect is more pronounced among more opaque firms, firms in economies with more powerful contract enforcement, and firms in jurisdictions with stronger legal protections. Overall, these findings highlight an important real effect of credit information sharing: enabling firms to be more innovative by improving lenders’ information set.