Events

Dr. Yan XIONG
Assistant Professor
Department of Finance
The Hong Kong University of Science and Technology

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 as the lender utilizes greater data coverage 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 the aggregate, borrowers too prefer that some digital data be collected. Disclosure policy can play a valuable role in allowing the lender to credibly commit to limiting its data coverage.