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Loan officer incentives and the limits of hard information

Author: Tobias Berg; Manju Puri; Jörg Rocholl; National Bureau of Economic Research.
Publisher: Cambridge, Mass. : National Bureau of Economic Research, 2013.
Series: Working paper series (National Bureau of Economic Research), no. 19051.
Edition/Format:   eBook : Document : EnglishView all editions and formats
Summary:
Poor loan quality is often attributed to loan officers exercising poor judgment. A potential solution is to base loans on hard information alone. However, we find other consequences of bypassing discretion stemming from loan officer incentives and limits of hard information verifiability. Using unique data where loans are based on hard information, and loan officers are volume-incentivized, we find loan officers  Read more...
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Material Type: Document, Internet resource
Document Type: Internet Resource, Computer File
All Authors / Contributors: Tobias Berg; Manju Puri; Jörg Rocholl; National Bureau of Economic Research.
OCLC Number: 843758732
Notes: Title from http://www.nber.org/papers/19051 viewed May 20, 2013.
"May 2013."
Description: 1 online resource (40 pages) : illustrations.
Series Title: Working paper series (National Bureau of Economic Research), no. 19051.
Responsibility: Tobias Berg, Manju Puri, Jorg Rocholl.

Abstract:

Poor loan quality is often attributed to loan officers exercising poor judgment. A potential solution is to base loans on hard information alone. However, we find other consequences of bypassing discretion stemming from loan officer incentives and limits of hard information verifiability. Using unique data where loans are based on hard information, and loan officers are volume-incentivized, we find loan officers increasingly use multiple trials to move loans over the cut-off, both in a regression-discontinuity design and when the cut-off changes. Additional trials positively predict default suggesting strategic manipulation of information even when loans are based on hard information alone.

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