How organizational hierarchy affects information production

Janis Skrastins and Vikrant Vig

No 92, IMFS Working Paper Series from Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)

Abstract: This paper empirically investigates how organizational hierarchy affects the allocation of credit within a bank. Using an exogenous variation in organizational design, induced by a reorganization plan implemented in roughly 2,000 bank branches in India during 1999 - 2006, and employing a difference-in-differences research strategy, we find that increased hierarchization of a branch decreases its ability to produce "soft" information on loans, leads to increased standardization of loans and rationing of "soft information" loans. Furthermore, this loss of information brings about a reduction in performance on loans: delinquency rates and returns on similar loans are worse in more hierarchical branches. We also document how hierarchical structures perform better in environments that are characterized by a high degree of corruption, thus highlighting the benefits of hierarchical decision making in restraining rent seeking activities. Finally, we document a channel { managerial interference { through which hierarchy affects loan outcomes.

Keywords: Hierarchies; Soft Information; Banks; Globalization; Complexity (search for similar items in EconPapers)
JEL-codes: D21 D83 G21 G30 (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: How Organizational Hierarchy Affects Information Production (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:imfswp:92

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