ORGANIZATIONAL MONITORING COSTS AND LOAN CONTRACT STANDARDIZATION

Andrea Bellucci, Alexander Borisov () and Alberto Zazzaro ()
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Alexander Borisov: Lindner College of Business, University of Cincinnati and MoFiR

No 194, Mo.Fi.R. Working Papers from Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences

Abstract: We empirically examine the relationship between monitoring costs within a banking organization and the standardization of credit terms in lending to small businesses. We find that when senior bank managers are away from a branch and monitoring of branch activity is more costly, loan officers at the branch exercise less discretion and standardize contract terms (collateral and credit amount) more. The relationship is also weaker in more competitive credit markets. Our results are consistent with the idea that costs of delegation within banking organizations affect their lending practices and external market discipline interacts with internal monitoring.

Keywords: bank structure; contract terms; soft information; small business lending (search for similar items in EconPapers)
JEL-codes: D22 D83 G21 L22 (search for similar items in EconPapers)
Pages: 18
Date: 2025-10
New Economics Papers: this item is included in nep-cfn
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Persistent link: https://EconPapers.repec.org/RePEc:anc:wmofir:194

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