| Economic theory tells us that information asymmetries influence outcomes in credit markets. This dissertation is about how people acquire information in a credit market. It argues that when the aggregate economy takes a downturn, lenders and investors seek out more information about borrowers and assets. This result holds true in the 19th century U.S. trade credit market and in the Commercial Mortgage Backed Security market of the early 21st century.;The first chapter of the dissertation outlines the early operational history of the Mercantile Agency, the first successful credit reporting agency, founded in 1841. The chapter introduces new evidence that the Agency kept track of credit inquiries by its subscribers in its credit report records. A dataset compiled from the credit records of New Orleans firms between 1850 and 1860 reveals that many lenders accessed credit reports for New Orleans but that the Agency also overproduced information.;The second chapter uses the same sample of New Orleans credit records from the 1850s to explore when lenders acquired information over the business cycle. Lenders were more likely to start accessing the reports for a borrower after they heard bad news, be it aggregate or borrower-specific. These results show that lenders require relatively more information about borrowers during an economic downturn, suggesting that information constraints likely play a more important role in credit market outcomes during these times. Furthermore, lenders responded to bad news about a borrower in their loan portfolio by acquiring information about other borrowers. This result sheds light on how one default can affect the larger credit network through contagious information acquisition. Given that subscribers acquired information counter cyclically, it was rational for the Agency to produce credit reports regularly in anticipation of a potential downturn. This anticipatory supply, combined with behavior of the subscribers, explains the apparent overproduction of credit reports.;The final chapter studies information in a modern asset market. The chapter uses a dataset of Commercial Mortgage Backed Securities issued between 2000 and 2007. It finds that the prices of the CMBS bonds with the highest subordination, the AAA tranches, were far less correlated with the risk of the collateral pool than the prices of the bonds with lower subordination, the BBB tranches. Furthermore, AAA bond prices become more correlated with pool risk characteristics at the end of 2007. This evidence suggests that more subordinated bonds were initially less information sensitive, but that uncertainty in the aggregate economy can lead to information production. |
