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http://ssrn.com/abstract=294660
 
 

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


Allen N. Berger


University of South Carolina - Moore School of Business; Wharton Financial Institutions Center; European Banking Center

Nathan H. Miller


U.S. Department of Justice

Mitchell A. Petersen


Northwestern University - Kellogg School of Management; National Bureau of Economic Research (NBER)

Raghuram G. Rajan


University of Chicago - Booth School of Business; International Monetary Fund (IMF); National Bureau of Economic Research (NBER)

Jeremy C. Stein


Harvard University - Department of Economics; National Bureau of Economic Research (NBER)

September 2002

Harvard Institute Research Working Paper No. 1976; Kellogg School of Management Working Paper No. 288

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.

Number of Pages in PDF File: 51

Keywords: Functional form, organizational structure, distance, banking, soft information, hard information

JEL Classification: G3, G2, D2

working papers series


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Date posted: December 26, 2001  

Suggested Citation

Berger, Allen N. and Miller, Nathan H. and Petersen, Mitchell A. and Rajan, Raghuram G. and Stein, Jeremy C., Does Function Follow Organizational Form? Evidence from the Lending Practices of Large and Small Banks (September 2002). Harvard Institute Research Working Paper No. 1976; Kellogg School of Management Working Paper No. 288. Available at SSRN: http://ssrn.com/abstract=294660 or http://dx.doi.org/10.2139/ssrn.294660

Contact Information

Allen N. Berger
University of South Carolina - Moore School of Business ( email )
1705 College St
Francis M. Hipp Building
Columbia, SC 29208
United States
803-576-8440 (Phone)
803-777-6876 (Fax)
Wharton Financial Institutions Center
Philadelphia, PA 19104-6367
United States
European Banking Center
P.O. Box 90153
Tilburg, 5000 LE
Netherlands
Nathan H. Miller
U.S. Department of Justice ( email )
450 Fifth St. NW
Room 9418
Washington, DC 20530
United States
Mitchell A. Petersen
Northwestern University - Kellogg School of Management ( email )
2001 Sheridan Road
Evanston, IL 60208
United States
847-467-1281 (Phone)
847-491-5719 (Fax)
National Bureau of Economic Research (NBER) ( email )
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
847-467-1281 (Phone)
847-491-5719 (Fax)
Raghuram G. Rajan
University of Chicago - Booth School of Business ( email )
5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-4437 (Phone)
773-702-0458 (Fax)
International Monetary Fund (IMF) ( email )
700 19th Street NW
Washington, DC 20431
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
773-702-9299 (Phone)
773-702-0458 (Fax)
Jeremy C. Stein (Contact Author)
Harvard University - Department of Economics ( email )
Littauer Center
Cambridge, MA 02138
United States
617-496-6455 (Phone)
617-496-7352 (Fax)
HOME PAGE: http://post.economics.harvard.edu/faculty/stein/stein.html
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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