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The Decision-Making Mechanism of Regional Financial Institutions and the Utilization of Soft Information

Author

Listed:
  • Tadanobu Nemoto

    (Professor, Faculty of Commerce, Chuo University)

  • Yoshiaki Ogura

    (Associate Professor, School of Political Science and Economics, Waseda University)

  • Wako Watanabe

    (Associate Professor, Faculty of Business and Commerce, Keio University)

Abstract

In this paper, we document a practice in the processes of loan screenings and term settings by regional financial institutions and the extent of the use of qualitative information in these processes based upon the data collected by our originally -designed questionnaire survey on financial institutions. With this dataset, we also conduct a statistical examination of the hypothesis presented by the existing theory, which predicts the positive correlation between the extent of the delegation of loan decision-making authorities to branches and the extent of the use of soft information. From the statistical analysis, we find a positive correlation, which is supportive of the hypothesis although the statistical significance is not so high. There is also a positive and statistically significant correlation between the asset size of financial institutions and the extent of the use of qualitative information. Our research shows that the results of the preceding empirical studies, which were designed upon the intuitive assumption that financial institutions with larger total assets have a more centralized decision-making system and their extent of the use of soft information is lower, should be interpreted with caution.

Suggested Citation

  • Tadanobu Nemoto & Yoshiaki Ogura & Wako Watanabe, 2013. "The Decision-Making Mechanism of Regional Financial Institutions and the Utilization of Soft Information," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 9(1), pages 87-116, January.
    • Handle: RePEc:mof:journl:ppr020e
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    File URL: http://warp.da.ndl.go.jp/info:ndljp/pid/11217434/www.mof.go.jp/english/pri/publication/pp_review/ppr020/ppr020e.pdf
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    Citations

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    Cited by:

    1. Jiangtao FU & OGURA Yoshiaki, 2017. "Product Network Connectivity and Information for Loan Pricing," Discussion papers 17028, Research Institute of Economy, Trade and Industry (RIETI).
    2. Nemoto, Tadanobu & Ogura, Yoshiaki & Watanabe, Wako, 2016. "Inside bank premiums as liquidity insurance," Journal of the Japanese and International Economies, Elsevier, vol. 42(C), pages 61-76.
    3. Saiki Tsuchiya & Shinichi Nishioka, 2014. "Estimation of Firms' Default Rates in terms of Intangible Assets," Bank of Japan Working Paper Series 14-E-2, Bank of Japan.
    4. Jiangtao Fu & Yoshiaki Ogura, 2017. "Product Network Connectivity and Information for Loan Pricing," Working Papers 1703, Waseda University, Faculty of Political Science and Economics.

    More about this item

    Keywords

    soft information; small and medium-sized enterprise finance; decision-making mechanism;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation
    • L23 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Organization of Production
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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