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Loan Officer Authority and Small Business Lending.Evidence from a survey

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  • benvenuti, m.
  • casolaro, l.
  • del prete, s.
  • mistrulli, p. e.

Abstract

A 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 Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 26475.

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Date of creation: Sep 2010
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Handle: RePEc:pra:mprapa:26475

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Keywords: Bank organization; Small business lending; Loan officer;

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References

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  1. Degryse, Hans & Laeven, Luc & Ongena, Steven, 2007. "The Impact of Organizational Structure and Lending Technology on Banking Competition," CEPR Discussion Papers 6412, C.E.P.R. Discussion Papers.
  2. Allen N. Berger & Nathan H. Miller & Mitchell A. Petersen & Raghuram G. Rajan & Jeremy C. Stein, 2002. "Does Function Follow Organzizational Form? Evidence From the Lending Practices of Large and Small Banks," Harvard Institute of Economic Research Working Papers 1976, Harvard - Institute of Economic Research.
  3. Allen N. Berger & Gregory F. Udell, 2001. "Small business credit availability and relationship lending: the importance of bank organizational structure," Finance and Economics Discussion Series 2001-36, Board of Governors of the Federal Reserve System (U.S.).
  4. Philippe Aghion & Jean Tirole, 1994. "Normal and Real Authority in Organizations," Working papers 94-13, Massachusetts Institute of Technology (MIT), Department of Economics.
  5. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  6. Degryse, H.A. & Cerqueiro, G.M. & Ongena, S., 2007. "Distance, Bank Organizational Structure and Credit," Discussion Paper 2007-018, Tilburg University, Tilburg Law and Economic Center.
  7. Gabriel Jiménez & Vicente Salas-Fumás & Jesús Saurina, 2008. "Organizational distance and use of collateral for business loans," Banco de Espa�a Working Papers 0816, Banco de Espa�a.
  8. Robert Hauswald & Robert Marquez, 2006. "Competition and Strategic Information Acquisition in Credit Markets," Review of Financial Studies, Society for Financial Studies, vol. 19(3), pages 967-1000.
  9. Pietro Alessandrini & Manuela Croci & Alberto Zazzaro, 2005. "The geography of banking power: role of function distance," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 58(235), pages 129-167.
  10. Pietro ALESSANDRINI & Andrea PRESBITERO & Alberto ZAZZARO, 2006. "Banks, Distances and Financing Constraints for Firms," Working Papers 266, Universita' Politecnica delle Marche (I), Dipartimento di Scienze Economiche e Sociali.
  11. Dell'Ariccia, Giovanni & Marquez, Robert, 2004. "Information and bank credit allocation," Journal of Financial Economics, Elsevier, vol. 72(1), pages 185-214, April.
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Citations

Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. Dis-economies of scale in finance: why big banks are less efficient than small ones
    by Nicholas Gruen in Club Troppo on 2010-11-16 01:24:06
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Cited by:
  1. Ivana Catturani & Sandro Trento, 2010. "Profit Versus Non Profit: A Third Way? The Case of the Italian Mutual Cooperative Banks," DISA Working Papers 1003, Department of Computer and Management Sciences, University of Trento, Italy, revised 23 Jul 2010.
  2. Marcello Pagnini & Silvia Del Prete & Paola Rossi & Valerio Vacca, 2013. "Lending Organization and Credit Supply During the Crisis," ERSA conference papers ersa13p673, European Regional Science Association.
  3. Francesca Bartoli & Giovanni Ferri & Pierluigi Murro & Zeno Rotondi, 2012. "SME Financing and the Choice of Lending Technology in Italy: Complementarity or Substitutability?," Working Papers CASMEF 1212, Dipartimento di Economia e Finanza, LUISS Guido Carli.
  4. Paolo Emilio Mistrulli & Valerio Vacca & Gennaro Corbisiero & Silvia del Prete & Luciano Esposito & Marco Gallo & Mariano Graziano & Maurizio Lozzi & Vincenzo Maffione & Daniele Marangoni & Andrea Mig, 2011. "Mutual Guarantee Institutions (MGIs) and small business credit during the crisis," Questioni di Economia e Finanza (Occasional Papers) 105, Bank of Italy, Economic Research and International Relations Area.
  5. Andrea F. Presbitero & Alberto Zazzaro, 2010. "Competition and Relationship Lending: Friends or Foes?," CESifo Working Paper Series 3103, CESifo Group Munich.
  6. Ongena, Steven & Şendeniz-Yüncü, İlkay, 2011. "Which firms engage small, foreign, or state banks? And who goes Islamic? Evidence from Turkey," Journal of Banking & Finance, Elsevier, vol. 35(12), pages 3213-3224.
  7. Masazumi Hattori & Kohei Shintani & Hirofumi Uchida, 2012. "Authority and Soft Information Production within a Bank Organization," IMES Discussion Paper Series 12-E-07, Institute for Monetary and Economic Studies, Bank of Japan.
  8. Valerio Vacca, 2011. "An unexpected crisis? Looking at pricing effectiveness of different banks," Temi di discussione (Economic working papers) 814, Bank of Italy, Economic Research and International Relations Area.
  9. Zeno Rotondi, 2013. "Relationship banking and organizational models: a new structure for UniCredit Group in Italy," BANCARIA, Bancaria Editrice, vol. 4, pages 15-23, April.
  10. Diana Bonfim & Qinglei Dai, 2012. "Bank size and lending specialization," Working Papers w201219, Banco de Portugal, Economics and Research Department.

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