Estimating the Impact of Hierarchies on Information Use

51 Pages Posted: 4 Nov 2008 Last revised: 8 Mar 2011

See all articles by Jose Maria Liberti

Jose Maria Liberti

Northwestern University - Kellogg School of Management; DePaul University

Atif R. Mian

Princeton University - Department of Economics; Princeton University - Woodrow Wilson School of Public and International Affairs; NBER

Date Written: November 3, 2008

Abstract

Theory suggests that greater hierarchical distance between a subordinate and his boss makes it more difficult to share abstract and subjective information in decision making. A novel data set put together from credit dossiers of large corporate loan applicants enables us to observe the information collected by loan officers and also how it is used by the ultimate loan approving officer. We find that greater hierarchical / geographical distance between the information collecting agent and the loan approving officer leads to less reliance on subjective information and more on objective information. By exploiting non-linearities in the "assignment rules" that determine an applicant's hierarchical distance, and using information collecting agent fixed effects, we show that our result cannot be driven by endogenous assignment of applicants. We also find that higher frequency of interactions between the information collecting agent and loan approving officer, both over time and through geographical proximity, helps mitigate the effects of hierarchical distance on information use. Our results show that hierarchical distance influences information use, and highlight the importance of "human touch" in communication.

Suggested Citation

Liberti, Jose Maria and Mian, Atif R., Estimating the Impact of Hierarchies on Information Use (November 3, 2008). Review of Financial Studies, Forthcoming. Available at SSRN: https://ssrn.com/abstract=1294861

Jose Maria Liberti

Northwestern University - Kellogg School of Management ( email )

2001 Sheridan Road
Jacobs 4203
Evanston, IL 60208
United States
(847) 491-5861 (Phone)
(847) 491-5719 (Fax)

HOME PAGE: http://www.kellogg.northwestern.edu/faculty/directory/liberti_jose.aspx

DePaul University ( email )

1 East Jackson Blvd.
Chicago, IL 60604-2287
United States
(312) 362-8739 (Phone)
(312) 362-6566 (Fax)

Atif R. Mian (Contact Author)

Princeton University - Department of Economics ( email )

Princeton, NJ 08544-1021
United States

Princeton University - Woodrow Wilson School of Public and International Affairs ( email )

Princeton University
Princeton, NJ 08544-1021
United States

NBER

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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