Data Regulation in Credit Markets
We study a credit market in which the lender bases its lending decisions on a borrower's digital profile, and the borrower can manipulate its digital profile at a cost. We show that when the extent of data collected by the lender is observable, as the lender utilizes more data in its underwriting models, the borrower is more likely to manipulate their digital profile, which impairs the quality of the lender’s data and its lending decisions. Therefore, even if obtaining and analyzing additional data is costless, the lender will voluntarily limit its own data coverage. In contrast, when the data coverage is unobservable, the lender tends to use all available data. Thus, disclosure policy can play a valuable role in allowing the lender to credibly commit to limiting its data coverage. Moreover, in the aggregate, borrowers might prefer that some digital data be collected.
Dr. Uday Rajan - Biography
Dr. Uday Rajan's research focuses on informational frictions such as adverse selection and moral hazard and their effect on market transactions, with recent work on the role of credit ratings in the financial markets and on FinTech competition in banking. Uday was a Vice President of Fixed Income Research at Drexel Burnham Lambert in the late 1980s, and received a PhD in Economics from Stanford University in 1995. His research has been published in top-tier journals such as the American Economic Review, Journal of Finance, Journal of Financial Economics, and Review of Financial Studies. He has received the Goldman Sachs Asset Management award for the best paper in the Review of Finance and the NYSE award for the best paper on equity trading at the WFA meetings. He has been an Editor of the Review of Corporate Finance Studies, an Associate Editor of the Journal of Finance and Management Science, and an editorial board member of Marketing Science. He is the Vice-President of the Financial Intermediation Research Society, and has been President of the Finance Theory Group and Director of the Western Finance Association. At Ross, he has received a teaching leadership award as well as MBA and PhD teaching awards.
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