Information and Incentives Inside the Firm: Evidence from Loan Officer Rotation
Jose Liberti () and
Journal of Finance, 2010, vol. 65, issue 3, 795-828
We present evidence that reassigning tasks among agents can alleviate moral hazard in communication. A rotation policy that routinely reassigns loan officers to borrowers of a commercial bank affects the officers' reporting behavior. When an officer anticipates rotation, reports are more accurate and contain more bad news about the borrower's repayment prospects. As a result, the rotation policy makes bank lending decisions more sensitive to officer reports. The threat of rotation improves communication because self‐reporting bad news has a smaller negative effect on an officer's career prospects than bad news exposed by a successor.
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Persistent link: https://EconPapers.repec.org/RePEc:bla:jfinan:v:65:y:2010:i:3:p:795-828
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