Humans vs Machines: Soft and Hard Information in Corporate Loan Pricing
50 Pages Posted: 15 May 2020
Date Written: November 18, 2019
This paper uses novel regulatory data on internal loan-level risk metrics of US banks to show that corporate loan interest rates line up closely with measures of hard information. We show that the variation in interest rates in excess of what internal models suggest provides limited information for predicting loan default. These results hold similarly for large and small banks, and are stronger for large firms, where hard information is more readily available. These results show that virtually all credit-relevant information contained in corporate loan pricing is hard information.
Keywords: Loan pricing, hard information, soft information, corporate loans
JEL Classification: G21, G17, G32
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