The Impact of Incentives and Communication Costs on Information Production and Use: Evidence from Bank Lending

49 Pages Posted: 28 Aug 2012 Last revised: 30 Jul 2015

See all articles by Jun Qian

Jun Qian

Fanhai International School of Finance, Fudan University; University of Pennsylvania - Wharton Financial Institutions Center

Philip E. Strahan

Boston College - Department of Finance; National Bureau of Economic Research (NBER)

Zhishu Yang

Tsinghua University - School of Economics & Management

Date Written: May 14, 2014

Abstract

In 2002 and 2003, many Chinese banks implemented reforms that delegated authority to individual loan officers. The change followed China’s entrance into the WTO and offers a plausibly exogenous shock to loan officer incentives to produce information. We find that the bank’s internal risk rating becomes a stronger predictor of loan interest rates and ex post outcomes after reform. When the loan officer and the branch president who approves the loan work together longer, the rating also becomes more strongly related to loan prices and outcomes. Our results highlight how incentives and communication costs affect information use and production.

Keywords: Bank loan, interest rate, default, incentive, communication cost

JEL Classification: G2, L2, D8

Suggested Citation

Qian, Jun and Strahan, Philip E. and Yang, Zhishu, The Impact of Incentives and Communication Costs on Information Production and Use: Evidence from Bank Lending (May 14, 2014). Journal of Finance, Volume 70, Issue 4, pages 1457–1493, August 2015, Available at SSRN: https://ssrn.com/abstract=2137708 or http://dx.doi.org/10.2139/ssrn.2137708

Jun Qian (Contact Author)

Fanhai International School of Finance, Fudan University ( email )

Shanghai
China
86-21-63895501 (Phone)
86-21-62934572 (Fax)

HOME PAGE: http://www.fisf.fudan.edu.cn/show-65-69.html

University of Pennsylvania - Wharton Financial Institutions Center

2306 Steinberg Hall-Dietrich Hall
Philadelphia, PA 19104
United States

HOME PAGE: http://fic.wharton.upenn.edu/fic/

Philip E. Strahan

Boston College - Department of Finance ( email )

Carroll School of Management
140 Commonwealth Avenue
Chestnut Hill, MA 02467-3808
United States
617-552-6430 (Phone)
617-552-0431 (Fax)

HOME PAGE: http://www2.bc.edu/~strahan

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Zhishu Yang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China
+86-10-62771769 (Phone)
+86-10-62785562 (Fax)

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