Can Centralization Improve the Use of Soft Information? Evidence from a Field Study and Lab Experiment
52 Pages Posted: 16 Aug 2016 Last revised: 21 Aug 2021
Date Written: August 1, 2021
Abstract
This paper studies whether increasing supervision impairs a loan officer's motivation to produce and share information. We first exploit an organizational change at a large European bank and find that centralization improves the use of soft information in evaluating the creditworthiness of small-to-medium size loan applicants. Next, we conduct a lab experiment and find that participants are more likely to accept an increase in supervision when it is motivated by changes in the external environment of the organization. Taken together, our study informs financial institutions, regulators, and academics on the potential benefits of centralization and provides insights on how to achieve employee acceptance when introducing a new supervision policy.
Suggested Citation: Suggested Citation