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Commercial lending concentration and bank expertise: Evidence from borrower financial statements

Philip G. Berger, Michael Minnis and Andrew Sutherland ()

Journal of Accounting and Economics, 2017, vol. 64, issue 2, 253-277

Abstract: Lending concentration features prominently in models of information acquisition by banks, but empirical evidence on its role is limited. Using bank-level loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how bank characteristics are related to the type of financial information they use and support theoretical predictions suggesting portfolio concentration reveals a bank's relative expertise.

Keywords: Commercial lending; Monitoring; Information economics; Lending concentration; Financial statements; Bank regulation; Auditing; Hard and soft information; Theory of the firm (search for similar items in EconPapers)
JEL-codes: G21 G38 M40 D82 L14 (search for similar items in EconPapers)
Date: 2017
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Journal of Accounting and Economics is currently edited by J. L. Zimmerman, S. P. Kothari, T. Z. Lys and R. L. Watts

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Handle: RePEc:eee:jaecon:v:64:y:2017:i:2:p:253-277