Loan Officer Authority and Small Business Lending.Evidence from a survey
AbstractA vast literature has emphasized that small banks are at a comparative advantage in small business lending. In this paper, we show that apart from size, which is negatively correlated with bank specialization in small business lending, organizational characteristics affect bank loan portfolio choices. By using a unique dataset based on a recent survey of Italian banks, we find that after having controlled for bank size, a branch loan officer’s authority has a key role in explaining bank specialization in small business lending. In particular, banks which delegate more decision-making power to their branch loan officers are more willing to lend to small firms than other banks. We approximate loan officers’ authority by controlling for several factors which shape their incentives: loan officer turnover, the amount of money up to which they are allowed to lend autonomously, their role in loan approval and in setting loan interest rates, the kind of information (soft versus hard information) used for screening and monitoring borrowers, and the structure of their compensation schemes.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 26475.
Date of creation: Sep 2010
Date of revision:
Bank organization; Small business lending; Loan officer;
Find related papers by JEL classification:
- L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
- L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-11-13 (All new papers)
- NEP-BAN-2010-11-13 (Banking)
- NEP-ENT-2010-11-13 (Entrepreneurship)
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