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Do Relationships Matter? Evidence from Loan Officer Turnover

Author

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  • Alejandro Drexler

    () (Federal Reserve Bank of Chicago, Chicago, Illinois 60604; and McCombs School of Business, University of Texas at Austin, Austin, Texas 78705)

  • Antoinette Schoar

    () (Sloan School of Management, Massachusetts Institute of Technology, Cambridge, Massachusetts 02139; National Bureau of Economic Research, Cambridge, Massachusetts 02138; and ideas42, New York, New York 10004)

Abstract

We show that the cost of employee turnover in firms that rely on decentralized knowledge and personal relationships depends on the firms' planning horizons and the departing employees' incentives to transfer information. Using exogenous shocks to the relationship between borrowers and loan officers, we document that borrowers whose loan officers are on leave are less likely to receive new loans from the bank, are more likely to apply for credit from other banks, and are more likely to miss payments or go into default. These costs are smaller when turnover is expected, as in the case of maternity leave, or when loan officers have incentives to transfer information, as in the case of voluntary resignations. This paper was accepted by Wei Jiang, finance .

Suggested Citation

  • Alejandro Drexler & Antoinette Schoar, 2014. "Do Relationships Matter? Evidence from Loan Officer Turnover," Management Science, INFORMS, vol. 60(11), pages 2722-2736, November.
  • Handle: RePEc:inm:ormnsc:v:60:y:2014:i:11:p:2722-2736
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    File URL: http://dx.doi.org/10.1287/mnsc.2014.1957
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    References listed on IDEAS

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    Cited by:

    1. Pietro Alessandrini & Luca Papi, 2018. "Banche locali e piccole imprese dopo la crisi tra nuove regole e innovazioni digitali," Mo.Fi.R. Working Papers 148, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    2. Luca Papi & Emma Sarno & Alberto Zazzaro, 2017. "The geographical network of bank organizations: issues and evidence for Italy," Chapters,in: Handbook on the Geographies of Money and Finance, chapter 8, pages 156-196 Edward Elgar Publishing.
    3. Christine Laudenbach & Jenny Pirschel & Stephan Siegel, 2018. "Personal Communication in a Fintech World: Evidence from Loan Payments," CESifo Working Paper Series 7295, CESifo Group Munich.
    4. Behr, Patrick & Drexler, Alejandro & Gropp, Reint & Guettler, Andre, 2014. "Financial incentives and loan officer behavior: Multitasking and allocation of effort under an incomplete contract," SAFE Working Paper Series 62, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.

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