How Organizational Hierarchy Affects Information Production

59 Pages Posted: 10 May 2018  

Janis Skrastins

Washington University in St. Louis

Vikrant Vig

London Business School

Date Written: April 26, 2018

Abstract

We exploit a variation in organizational hierarchy induced by a reorganization plan implemented in roughly 2,000 bank branches in India, to investigate how organizational hierarchy affects the allocation of credit. We find that increased hierarchization of a branch induces credit rationing, reduces the performance on loans, and generates standardization in loan contracts. Additionally, we find that hierarchical structures perform better in environments characterized by a high degree of corruption, highlighting the benefits of hierarchies in restraining rent seeking activities. Overall, our results are consistent with the view that valuable information may be lost in hierarchical structures.

Keywords: Hierarchies, Information, Banks, Credit

JEL Classification: D21, D83, G21, G30

Suggested Citation

Skrastins, Janis and Vig, Vikrant, How Organizational Hierarchy Affects Information Production (April 26, 2018). Available at SSRN: https://ssrn.com/abstract=3169911 or http://dx.doi.org/10.2139/ssrn.3169911

Janis Skrastins (Contact Author)

Washington University in St. Louis ( email )

1 brookings drive
campus box 1133
st louis, MO St Louis 63130
United States

HOME PAGE: http://www.jskrastins.com

Vikrant Vig

London Business School ( email )

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

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