The Incentive Effect of Scores: Randomized Evidence from Credit Committees

55 Pages Posted: 10 Aug 2013 Last revised: 8 Oct 2014

See all articles by Daniel Paravisini

Daniel Paravisini

London School of Economics & Political Science (LSE)

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management; National Bureau of Economic Research (NBER)

Date Written: August 2013

Abstract

We design a randomized controlled trial to evaluate the adoption of credit scoring with a bank that uses soft information in small businesses lending. We find that credit scores improve the productivity of credit committees, reduce managerial involvement in the loan approval process, and increase the profitability of lending. Credit committee members' effort and output also increase when they anticipate the score becoming available, indicating that scores improve incentives to use existing information. Our results imply that credit scores improve the efficiency and decentralize decision-making in loan production, which has implications for the optimal organization of banks.

Suggested Citation

Paravisini, Daniel and Schoar, Antoinette, The Incentive Effect of Scores: Randomized Evidence from Credit Committees (August 2013). NBER Working Paper No. w19303. Available at SSRN: https://ssrn.com/abstract=2308272

Daniel Paravisini (Contact Author)

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Antoinette Schoar

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

50 Memorial Drive, E52-447
Cambridge, MA 02142
United States
617-253-3763 (Phone)
617-258-6855 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
13
Abstract Views
461
PlumX Metrics