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Initiative, Incentives and Soft Information. How Does Delegation Impact The Role of Bank Relationship Managers?

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Author Info
Jose Maria Liberti (London Business School)

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Abstract

This paper empirically examines how changes in the hierarchical structure of a large organization can affect incentives. The empirical analysis exploits a change in the hierarchical structure of the Corporate Division of a private foreign commercial bank in Argentina between 1999 and 2001. Using detailed hand collected data on credit approvals, as well as perceived effort measures for each relationship manager from quality surveys done to borrowing firms, I test whether delegation of authority and reduction of oversight improves or decreases the provision of effort by account managers. Results suggest that 'empowering managers' increases the time relationship managers spend with their corporate clients, increases perceived effort and reduces the number of complaints the bank receives from its clients. Alternative explanations and several tests are constructed to examine the different channels through which effort measures could have increased other than the change in organizational structure. I then test whether the improvement is really because managers make better use of their decision making authority rather than they simply waste less time in filing reports to their superiors. I find that individuals who receive more authority use their soft information more compared to individuals to whom authority is only partially delegated. This suggests that delegation of authority increases managerial effort not only because management spends less time reporting to bosses, but also because they recognize that their effort will have greater impact on outcomes. Hence, transmission of, and reliance on, soft information are higher under decentralized than centralized structures. Finally, I test whether the change in structure was meaningful and productive from the bank's financial perspective. I find that cross-selling measures and bank's financial ratios increased after the organizational change.

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Paper provided by EconWPA in its series Finance with number 0404023.

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Length: 70 pages
Date of creation: 30 Apr 2004
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Handle: RePEc:wpa:wuwpfi:0404023

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Related research
Keywords: Delegation of Authority; Incentives; Soft Information; Relationship Banking.;

Other versions of this item:

Find related papers by JEL classification:
G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies
G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Mortgages
G30 - Financial Economics - - Corporate Finance and Governance - - - General
L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure
L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production

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References listed on IDEAS
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Hans Degryse & Steven Ongena, 2004. "Bank orientation and industry specialization," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 412-427. [Downloadable!]
  2. Degryse, Hans & Ongena, Steven, 2006. "The impact of competition on bank orientation," Discussion Paper 68, Tilburg University, Center for Economic Research. [Downloadable!]
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  3. Cerqueiro, G.M. & Degryse, H.A. & Ongena, S., 2007. "Rules versus Discretion in Loan Rate Setting," Discussion Paper 2007-026, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
    Other versions:
  4. 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. [Downloadable!] (restricted)
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  5. Ongena, S. & Degryse, H.A., 2003. "The impact of competition on bank orientation and specialization," Discussion Paper 108, Tilburg University, Center for Economic Research. [Downloadable!]
    Other versions:
  6. Laura Bottazzi & Marco Da Rin & Thomas Hellmann, 2004. "Active Financial Intermediation: Evidence on the Role of Organizational Specialization and Human Capital," Working Papers 266, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University. [Downloadable!]
    Other versions:
  7. Maria Guadalupe & Julie Wulf, 2008. "The Flattening Firm and Product Market Competition: The Effect of Trade Liberalization," NBER Working Papers 14491, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. 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. [Downloadable!]
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