Abstract

http://ssrn.com/abstract=2046696
 
 

References (25)



 


 



Loan Prospecting and the Loss of Soft Information


Sumit Agarwal


National University of Singapore

Itzhak Ben-David


Ohio State University - Fisher College of Business, Finance Department; National Bureau of Economic Research (NBER)

July 31, 2015

Charles A. Dice Center Working Paper No. 2012-7
Fisher College of Business Working Paper No. 2012-03-007

Abstract:     
We study a controlled experiment in a large U.S. commercial bank in which loan officers engaged in loan prospecting. Consequently, loan size, loan volume, and loan default increased. We show that while the bank’s credit standards did not change, it put greater weight on hard information in the approval process and thus approved many applications that previously would have been rejected. Furthermore, loan officers did not source new applications but rather convinced existing applicants to borrow larger amounts. Both factors contributed to a higher default rate and to the loss of the predictive power of the bank’s credit model.

Number of Pages in PDF File: 46

Keywords: loan officers, loan prospecting, information production, credit default model

JEL Classification: G01, G21


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Date posted: April 26, 2012 ; Last revised: August 28, 2015

Suggested Citation

Agarwal, Sumit and Ben-David, Itzhak, Loan Prospecting and the Loss of Soft Information (July 31, 2015). Charles A. Dice Center Working Paper No. 2012-7; Fisher College of Business Working Paper No. 2012-03-007. Available at SSRN: http://ssrn.com/abstract=2046696 or http://dx.doi.org/10.2139/ssrn.2046696

Contact Information

Sumit Agarwal
National University of Singapore ( email )
15 Kent Ridge Drive
Singapore, 117592
Singapore
8118 9025 (Phone)
HOME PAGE: http://www.ushakrisna.com
Itzhak Ben-David (Contact Author)
Ohio State University - Fisher College of Business, Finance Department ( email )
2100 Neil Avenue
Fisher 700D
Columbus, OH 43210-1144
United States
773 988 1353 (Phone)
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/index.htm

National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
HOME PAGE: http://fisher.osu.edu/fin/faculty/Ben-David/
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