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Organizational Monitoring Costs And Loan Contract Standardization

Author

Listed:
  • Andrea Bellucci

    (Universita' degli Studi dell'Insubria and Mo.Fi.R.)

  • Alexander Borisov

    (Lindner College of Business, University of Cincinnati and MoFiR)

  • Alberto Zazzaro

    (University of Naples Federico II, CSEF and MoFiR)

Abstract

We empirically examine the relationship between monitoring costs within a banking organization and the standardization of credit terms in lending to small businesses. We find that when senior bank managers are away from a branch and monitoring of branch activity is more costly, loan officers at the branch exercise less discretion and standardize contract terms (collateral and credit amount) more. The relationship is also weaker in more competitive credit markets. Our results are consistent with the idea that costs of delegation within banking organizations affect their lending practices and external market discipline interacts with internal monitoring.

Suggested Citation

  • Andrea Bellucci & Alexander Borisov & Alberto Zazzaro, 2025. "Organizational Monitoring Costs And Loan Contract Standardization," Mo.Fi.R. Working Papers 194, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    • Handle: RePEc:anc:wmofir:194
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    Keywords

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    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • L22 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Organization and Market Structure

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