AUTHORITY, INFORMATION, AND CREDIT TERMS: EVIDENCE FROM SMALL BUSINESS LENDING

Andrea Bellucci, Alexander Borisov () and Alberto Zazzaro ()
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Alexander Borisov: Lindner College of Business, University of Cincinnati and MoFiR

No 184, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: This paper studies the interplay between allocation of decision-making authority and information production within a bank in the context of small business lending. Using a sample of credit lines to small businesses and changes in the overlap between decision-making authority and information production following an organizational restructuring of the bank, we show that an increase in the authority of the information-producing loan officer leads to a reduction in the use of collateral but leaves interest rates broadly unchanged. The reduction of collateral requirements is more pronounced when loan officers have tacit local knowledge or soft information or when their real authority is limited pre-restructuring. Our results highlight the effect of alignment of information production and decision-making authority on the contract terms of bank credit.

Keywords: Soft and hard information; Collateral; Interest rate; Organizational hierarchies; SMEs financing (search for similar items in EconPapers)
JEL-codes: D21 D83 G21 G30 L11 (search for similar items in EconPapers)
Pages: 41
Date: 2023-12
New Economics Papers: this item is included in nep-ban, nep-cfn and nep-ent
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http://docs.dises.univpm.it/web/quaderni/pdfmofir/Mofir184.pdf First version, 2023 (application/pdf)

Related works:
Working Paper: Authority, Information, and Credit Terms: Evidence from Small Business Lending (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:184

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