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Loan Officers and Relationship Lending

Listed author(s):
  • Hirofumi Uchida
  • Gregory F. Udell
  • Nobuyoshi Yamori

Theoretical and empirical work suggests that commercial loan officers play a critical role in relationship lending by producing soft information about their SME borrowers. We test whether loan officers in the Japanese SME loan market perform this role in a manner that is consistent with the theoretical predictions in the relationship lending literature. While we find limited evidence that soft information may benefit SME borrowers, we do not find evidence that is on balance consistent with theoretical predictions that loan officers produce soft information that is not easily transmitted to others within the bank. These results are consistent with alternative explanations including the possibility that the social environment in Japan leads to a credit culture where it is easier to transmit soft information from one loan officer to another. It could also be consistent with the possibility that the relationship lending may not be particularly important in the Japanese SME loan market.

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File URL: http://www.rieti.go.jp/jp/publications/dp/06e031.pdf
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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 06031.

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Length: 39 pages
Date of creation: Jun 2006
Handle: RePEc:eti:dpaper:06031
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