Loan Officer Authority and Small Business Lending.Evidence from a survey

Michele Benvenuti (), L. Casolaro, S. Del Prete and Paolo Emilio Mistrulli

MPRA Paper from University Library of Munich, Germany

Abstract: A vast literature has emphasized that small banks are at a comparative advantage in small business lending. In this paper, we show that apart from size, which is negatively correlated with bank specialization in small business lending, organizational characteristics affect bank loan portfolio choices. By using a unique dataset based on a recent survey of Italian banks, we find that after having controlled for bank size, a branch loan officer’s authority has a key role in explaining bank specialization in small business lending. In particular, banks which delegate more decision-making power to their branch loan officers are more willing to lend to small firms than other banks. We approximate loan officers’ authority by controlling for several factors which shape their incentives: loan officer turnover, the amount of money up to which they are allowed to lend autonomously, their role in loan approval and in setting loan interest rates, the kind of information (soft versus hard information) used for screening and monitoring borrowers, and the structure of their compensation schemes.

Keywords: Bank organization; Small business lending; Loan officer (search for similar items in EconPapers)
JEL-codes: G21 L15 L22 (search for similar items in EconPapers)
Date: 2010-09
New Economics Papers: this item is included in nep-ban and nep-ent
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (19)

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