Information frictions inside a bank: Evidence from borrower switching between branches

Di Gong, Steven Ongena, Shusen Qi and Yanxin Yu

No 7/2025, BOFIT Discussion Papers from Bank of Finland Institute for Emerging Economies (BOFIT)

Abstract: Banks are multidivisional organizations in which branches hold local knowledge about borrowers. Can this "soft" information be transmitted across units? Studying the population of corporate loans originated by a large commercial bank in China from 2010 to 2020, we find that when firms switch branches within bank, the switching loans carry a significantly lower spread than comparable nonswitching loans. After switching, the new branch further reduces the loan spreads initially, but ratchets it up afterwards, surprising evidence of intra-bank hold-up. By documenting how internal communication failures distort lending, we link relationship banking with delegation, coordination, and information transmission within organizations.

Keywords: organization structure; bank lending; hold-up; firm-bank relationship (search for similar items in EconPapers)
JEL-codes: G21 G32 L14 (search for similar items in EconPapers)
Date: 2025
New Economics Papers: this item is included in nep-cna, nep-knm and nep-sea
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Working Paper: Information Frictions inside a Bank: Evidence from Borrower Switching between Branches (2025)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofitp:330334

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