This paper provides evidence that lenders to a firm close to distress have incentives to coordinate: lower financing by one lender reduces firm creditworthiness and causes other lenders to reduce financing. To isolate the coordination channel from lenders' joint reaction to new information, we exploit a natural experiment that made lenders' negative private assessments about their borrowers public. We show that lenders, while learning nothing new about the firm, reduce credit in anticipation of the reaction by other lenders to the same firm. The results show that public information exacerbates lender coordination and increases the incidence of firm financial distress.
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Paravisini, Daniel, Andrew Hertzberg, and Jose Maria Liberti. "Public Information and Coordination: Evidence from a Credit Registry Expansion." Journal of Finance 66, no. 2 (April 2011): 379-412.