The Determinants and the Effect of Soft Information 'Loss' in Bank Lending.
23 Pages Posted: 22 Jun 2017
Date Written: June 21, 2017
Abstract
In this paper, we examine who holds the decision-making power for credit approval in small business lending and the determinants of shifting this power from a local branch to an upper organizational level. Since soft information is usually collected by local branches, shifting the decision-making power may lead to a loss of soft information because it is difficult to transmit soft information across organizational levels. We discover that when the local bank operates with a relationship lending strategy, it tends to handle loan requests, and soft information loss is less likely to occur. Furthermore, we observe that the organizational level at which loan requests are handled has a significant effect on the approval/rejection of a loan request.
Keywords: credit rationing, soft information
JEL Classification: G13
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