Do Loan Officers Impact Lending Decisions? Evidence from the Corporate Loan Market

61 Pages Posted: 7 Nov 2016 Last revised: 22 Mar 2017

See all articles by Janet Gao

Janet Gao

Indiana University - Kelley School of Business

Xiumin Martin

Washington University in Saint Louis - Olin School of Business

Joseph Pacelli

Indiana University - Kelley School of Business - Department of Accounting

Date Written: March 21, 2017

Abstract

We examine and quantify the economic importance of loan officers in the corporate lending process. We construct a comprehensive database that allows us to track the lending terms and loan performance of corporate loans issued by over 7,000 loan officers employed by major U.S. corporate lending departments during the period spanning from 1994 to 2012. We find that loan officers have a substantial impact on both the contract terms (loan spreads, covenants, and maturity) and the performance of corporate loans. The results are robust to controlling for endogeneity concerns related to assortative matching in the labor market. Loan officers' influence on the lending process has not declined much over time, despite technological innovations designed to automate lending. Furthermore, these officers exhibit a greater impact on the lending process in larger, more complex organizations in which information asymmetries are more pronounced. Overall, our study sheds light on the inner workings of corporate banking departments and suggests that a significant portion of lending decisions are delegated to individual loan officers.

Keywords: Loan Officers, Human Capital, Syndicated Loans, Loan Contracts

JEL Classification: G30, G32, J24, D23

Suggested Citation

Gao, Janet and Martin, Xiumin and Pacelli, Joseph, Do Loan Officers Impact Lending Decisions? Evidence from the Corporate Loan Market (March 21, 2017). Kelley School of Business Research Paper No. 16-80. Available at SSRN: https://ssrn.com/abstract=2865175 or http://dx.doi.org/10.2139/ssrn.2865175

Janet Gao

Indiana University - Kelley School of Business ( email )

1309 East Tenth Street
Indianapolis, IN 47405-1701
United States

Xiumin Martin

Washington University in Saint Louis - Olin School of Business ( email )

Saint Louis, MO 63130
United States

Joseph Pacelli (Contact Author)

Indiana University - Kelley School of Business - Department of Accounting ( email )

1309 E. 10th Street
Bloomington, IN 47405
United States

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