Information, Credit, and Organization

60 Pages Posted: 23 Jun 2016  

Jose Maria Liberti

Northwestern University - Kellogg School of Management; DePaul University

Amit Seru

Stanford University

Vikrant Vig

London Business School

Date Written: June 2016

Abstract

This paper investigates the effect of a change in informational environment of borrowers on the organizational design of bank lending. We use micro-data from a large multinational bank and exploit the sudden introduction of a credit registry, an information-sharing mechanism across banks, for a subset of borrowers. Using within borrower and loan officer variation in a difference-in-difference empirical design, we show that expansion of credit registry led to an improvement in allocation of credit to affected borrowers. There was a concurrent change in the organizational structure of the bank that involved a dramatic increase in delegation of lending decisions of affected borrowers to loan officers. We also find a significant expansion in scope of activities of loan officers who deal primarily with affected borrowers, as well as of their superiors. There is suggestive evidence that larger banks in the economy were better able to implement similar changes as our bank. We argue that these patterns can be understood within the framework of incentive-based and information cost processing theories. Our findings could help rationalize why improvements in the information environment of borrowers may be altering the landscape of lending by moving decisions outside the boundaries of financial intermediaries.

Keywords: Information, Organization, Incentives, Information-Pocessing, Delegation

JEL Classification: G30, G20, L20

Suggested Citation

Liberti, Jose Maria and Seru, Amit and Vig, Vikrant, Information, Credit, and Organization (June 2016). Available at SSRN: https://ssrn.com/abstract=2798608 or http://dx.doi.org/10.2139/ssrn.2798608

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)

Amit Seru (Contact Author)

Stanford University ( email )

Stanford, CA 94305
United States

Vikrant Vig

London Business School ( email )

Sussex Place
Regent's Park
London, London NW1 4SA
United Kingdom

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