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Initiative, Incentives, and Soft Information

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  • José María Liberti

    (Kellogg School of Management, Northwestern University, Evanston, Illinois 60208; Kellstadt Graduate School of Business, DePaul University, Chicago, Illinois 60604)

Abstract

This paper examines how organizational form affects incentives inside a financial institution. Using unique organization-level data, I exploit a change to the hierarchical organization to test whether delegation of authority and reduction of oversight improve the provision of effort by loan officers. I find that empowering loan officers increases their effort in producing and using soft information in their lending decisions. Consistent with the incentive view of delegation, loan officers who receive more authority rely more on soft information relative to hard information in their decisions than those for whom authority is only partially or not delegated. The results shed light on the importance of organizational design for the production and use of soft information in financial institutions.

Suggested Citation

  • José María Liberti, 2018. "Initiative, Incentives, and Soft Information," Management Science, INFORMS, vol. 64(8), pages 3714-3734, August.
  • Handle: RePEc:inm:ormnsc:v:64:y:2018:i:8:p:3714-3734
    DOI: 10.1287/mnsc.2016.2690
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    References listed on IDEAS

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    Cited by:

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    4. Theodora Bermpei & Antonios Nikolaos Kalyvas & Leone Leonida, 2021. "Local Public Corruption and Bank Lending Activity in the United States," Journal of Business Ethics, Springer, vol. 171(1), pages 73-98, June.
    5. Estrin, Saul & Khavul, Susanna & Wright, Mike, 2021. "Soft and hard information in equity crowdfunding: network effects in the digitalization of entrepreneurial finance," LSE Research Online Documents on Economics 109808, London School of Economics and Political Science, LSE Library.

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