Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks

Allen Berger (), Nathan H. Miller, Mitchell Petersen, Raghuram Rajan and Jeremy Stein

No 8752, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities that require the processing of soft information. We explore this idea in the context of bank lending to small firms, an activity that is typically thought of as relying heavily on soft information. We find that large banks are less willing than small banks to lend to informationally 'difficult' credits, such as firms that do not keep formal financial records. Moreover, controlling for the endogeneity of bank-firm matching, large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively. All of this is consistent with small banks being better able to collect and act on soft information than large banks.

JEL-codes: D21 D23 (search for similar items in EconPapers)
Date: 2002-01
New Economics Papers: this item is included in nep-ent
Note: CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (74)

Published as Allen N. Berger & Nathan H. Miller & Mitchell A. Petersen & Raghuran G. Rajan & Jeremy C. Stein, 2002. "Does function follow organizational form? evidence from the lending practices of large and small banks," Proceedings, Federal Reserve Bank of Chicago, issue May, pages 383-400
Published as Journal of Financial Economics, May 2005, 76(2): 237-269

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Journal Article: Does function follow organizational form? Evidence from the lending practices of large and small banks (2005)
Working Paper: Does function follow organizational form? evidence from the lending practices of large and small banks (2002)
Working Paper: Does Function Follow Organzizational Form? Evidence From the Lending Practices of Large and Small Banks (2002)
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