The Right to Decide and the Effective Control Over Small Business Lending Decisions: A Look into Loan Officers’ Real Authority

31 Pages Posted: 11 Aug 2017

Date Written: July 2017

Abstract

A vast literature has emphasised that small banks are at a comparative advantage in lending to small businesses. In this paper, we show that, in addition to bank size, loan officers’ authority affects banks’ specialisation in small business lending. By using a unique dataset based on a survey of Italian banks, we find that loan officers’ authority has a key role in explaining bank specialisation in small business lending. In particular, banks that delegate more decision‐making power to their loan officers are more willing to lend to small firms than other banks. We use several proxies for measuring loan officers’ authority: their discretion in loan approval and in setting loan interest rates, the amount of money up to which they are allowed to lend autonomously, their turnover, their compensation schemes and the kind of information (soft vs. hard information) used both for screening and monitoring purposes.

Suggested Citation

Benvenuti, Michele and Casolaro, Luca and Del Prete, Silvia and Mistrulli, Paolo Emilio, The Right to Decide and the Effective Control Over Small Business Lending Decisions: A Look into Loan Officers’ Real Authority (July 2017). Economic Notes, Vol. 46, Issue 2, pp. 237-268, 2017. Available at SSRN: https://ssrn.com/abstract=3016664 or http://dx.doi.org/10.1111/ecno.12079

Michele Benvenuti (Contact Author)

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Luca Casolaro

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Silvia Del Prete

Bank of Italy ( email )

Via Nazionale 91
Rome, 00184
Italy

Paolo Emilio Mistrulli

Bank of Italy ( email )

Via Nazionale 91
00184 Roma
Italy

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