Hierarchy of bank loan approval and loan performance
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This paper analyzes data from a regional Italian bank to provide new evidence on the relationship between who, within a bank, approves a loan and the subsequent performance of the loan. The size of the bank and its pool of clients, who are primarily small- and medium-size firms, comprises characteristics of both relationship-based and transaction-based lending technologies. Our key finding is that the probability of loan default increases as the loan approval decision is made at higher levels of the lending-decision hierarchy. This evidence supports the primacy of relationship-lending technology relative to transaction-based lending technology.
KeywordsLending technologies SMEs funding Soft and hard information Relationship lending
JEL ClassificationG21 G28 L25 O12 O16
The authors thank Bob Chirinko, two anonymous referees, and participants at the International Conference on Small Businesses, Banks, Finance, Innovation and Growth held in Urbino, 12-13 October 2017, for helpful comments and suggestions. The usual disclaimers apply.
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