Hardening Soft Information: How Far Has Technology Taken Us?

Stefano Filomeni, Gregory F. Udell () and Alberto Zazzaro ()
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Stefano Filomeni: Polytechnich University of Marche
Gregory F. Udell: Indiana University, Kelley School of Business and MoFiR

CSEF Working Papers from Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy

Abstract: We explore the boundaries of soft information by investigating whether soft information can be “hardened” in commercial loan underwriting such that it can be communicated across the hierarchical layers of a large bank. We use data from a large European bank containing granular loan-level information on the credit score building process and loan approval decisions. Like other banks, soft information is injected into the scoring process at several points. We find that credit scoring technology does not eliminate the barriers to soft information communication within a banking organization. We also find that firms applying to distantly located branches receive a lower amount of credit than firms with the same score applying to branches closer to the bank office with final approval authority, especially if the final score incorporates positive soft information. Our findings confirm the persistence of spatially-based organizational frictions even in the context of a modern credit-scoring based lending technology.

Keywords: Credit scoring; communication problems; bank organization; loan officer discretion (search for similar items in EconPapers)
JEL-codes: D82 G21 L14 (search for similar items in EconPapers)
Date: 2016-10-12
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Citations: View citations in EconPapers (9)

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Working Paper: Hardening Soft Information: How Far Has Technology Taken Us? (2016)
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