The Impact of Organizational Downsizing on Loan Officer Specialization and Credit Defaults

58 Pages Posted: 16 Nov 2018 Last revised: 27 Mar 2020

See all articles by Michael Goedde-Menke

Michael Goedde-Menke

University of Münster - Finance Center Münster

Peter-Hendrik Ingermann

University of Münster - Finance Center Münster

Date Written: March 27, 2020

Abstract

This paper studies how organizational downsizing in a bank affects loan officer specialization and the credit default risk of small and medium-sized enterprises. We exploit a wave of early loan officer retirements as a quasi-natural experiment, in which the resulting borrower reallocations exogenously changed the industry specialization levels of the remaining loan officers. In a difference-in-differences analysis excluding all reallocated borrowers, we find that a negative shock to loan officer specialization causes an increase in default rates due to an inferior production of default risk information and excessive loan growth. A positive shock to loan officer specialization generates opposite effects.

Keywords: Downsizing, Credit default rates, Industry specialization, Soft information production, Monitoring synergies

JEL Classification: G21, G33

Suggested Citation

Goedde-Menke, Michael and Ingermann, Peter-Hendrik, The Impact of Organizational Downsizing on Loan Officer Specialization and Credit Defaults (March 27, 2020). Available at SSRN: https://ssrn.com/abstract=3276248 or http://dx.doi.org/10.2139/ssrn.3276248

Michael Goedde-Menke (Contact Author)

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

Peter-Hendrik Ingermann

University of Münster - Finance Center Münster ( email )

Universitätsstraße 14-16
Münster, 48143
Germany

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