Information Sharing and Rating Manipulation

We show that banks manipulate the credit ratings of their borrowers before being compelled to share them with competing banks. Using a unique feature on the timing of information disclosure of a public credit registry, we disentangle the effect of manipulation from learning of credit ratings. We show that banks downgrade high quality borrowers on which they have positive private information to protect their informational rents. Banks also upgrade low quality borrowers with multiple lenders to avoid creditor runs. Our results suggest that manipulation of credit ratings limits the positive effects of credit registries' information disclosure on credit allocation