Working Paper: NBER ID: w25075
Authors: Jos Mara Liberti; Mitchell A. Petersen
Abstract: Information is a fundamental component of all financial transactions and markets, but it can arrive in multiple forms. We define what is meant by hard and soft information and describe the relative advantages of each. Hard information is quantitative, easy to store and transmit in impersonal ways, and its information content is independent of its collection. As technology changes the way we collect, process, and communicate information, it changes the structure of markets, design of financial intermediaries, and the incentives to use or misuse information. We survey the literature to understand how these concepts influence the continued evolution of financial markets and institutions.
Keywords: hard information; soft information; financial markets; lending; banking
JEL Codes: G2; G21; G3
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Type of information (hard) (C89) | Transaction costs in lending (G19) |
| Type of information (shift to hard) (C89) | Structure of banking markets (G21) |
| Type of information (hard) (C89) | Quality of borrower assessments (G21) |
| Type of information (hard vs. soft) (L15) | Structure and efficiency of financial markets (G14) |
| Reliance on hard information (D83) | Transaction costs in lending (G19) |
| Shift to hard information (D89) | Durability of borrower-lender relationships (G51) |