How Does Organizational Form Matter? Distance, Communication and Soft Information
54 Pages Posted: 20 Mar 2005
Date Written: March 2005
This paper empirically examines how both soft and hard information are transmitted and used within an organization. For this purpose I explore the hierarchical decision-making approval process of corporate loans in a foreign bank in Argentina. Results suggests that loans that go to higher levels in the organization for approval embed more hard relative to soft information in explaining credit availability. These results are robust to alternative measures of vertical dimension such as the level of approval, total number of signatures and total time to approve the loan. I also analyze whether geographical location of the ultimate person approving the loan impacts the results. I find that loans that are approved inside the branch rely significantly more on soft information compared to those loans that are approved elsewhere. Direct communication with the ultimate layer approving the loan implies that soft is relatively more used than hard information. Transmission of soft information is easier if direct personal communication is feasible. I use several credit complexity measures to analyze alternative channels that could explain the previous results and find that results are robust to the inclusion of such measures. Finally, I question the definition of both hard and soft information measures. Results show that soft information can be transmitted and used along the hierarchical levels and that further qualifying hard information matters. Namely, I find higher reliance on soft information even at higher hierarchical levels when hard information is not reliable. These last results raise questions regarding the validity of the main assumptions for non-transmission of soft information used by current theoretical models of organizational structure.
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