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Loan Officer Turnover and Credit Availability for Small Firms

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  • Jonathan A. Scott

Abstract

This paper presents empirical evidence on the role loan officers play in facilitating small firm access to commercial bank loans. If loan officers use soft information (for example, assessments of character, information from customers and suppliers) to make lending decisions that would not otherwise be made on the basis of hard information (for example, tax returns or financial statements), then, frequent turnover in loan officers should be associated with an adverse effect on credit availability. This relationship is confirmed empirically using survey data of U.S. small firms in 1995 and 2001, where loan officer turnover is positively related to the turndown rate on the most recent loan application. Although loan officer turnover could be influenced by the turndown rate (for example, an owner changes banks and gets a new loan officer as a result of a recent turndown), its negative effect on credit availability persists under several different tests.

Suggested Citation

  • Jonathan A. Scott, 2006. "Loan Officer Turnover and Credit Availability for Small Firms," Journal of Small Business Management, Taylor & Francis Journals, vol. 44(4), pages 544-562, October.
    • Handle: RePEc:taf:ujbmxx:v:44:y:2006:i:4:p:544-562
    DOI: 10.1111/j.1540-627X.2006.00186.x
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    Cited by:

    1. Stefano Filomeni & Michele Modina & Elena Tabacco, 2023. "Trade credit and firm investments: empirical evidence from Italian cooperative banks," Review of Quantitative Finance and Accounting, Springer, vol. 60(3), pages 1099-1141, April.
    2. Keil, Jan, 2023. "Lending relationships when creditors are in control," Journal of Corporate Finance, Elsevier, vol. 79(C).
    3. Marc Cowling & Weixi Liu & Raffaella Calabrese, 2022. "Has previous loan rejection scarred firms from applying for loans during Covid-19?," Small Business Economics, Springer, vol. 59(4), pages 1327-1350, December.

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