Abstract
The purpose of this article was to explore and analyze the earlier findings and latest research-related on lending decision making. The review focuses on the borrower characteristic information and relationship lending on lending decision making. Previous research revealed that the borrower characteristic information produced through the so-called lending technology, and the characteristics of the borrower can be classified into two categories; qualitative characteristic and quantitative characteristics. The results of this review also showed that there were inconsistencies findings on the effects of the characteristics of the borrower and relationship lending on lending decision making. These finding inconsistencies allegedly influenced by organizational factors and banks loan officer psychological factors as decision makers in the lending decision making.
Highlights
Financial intermediation theory states that the intermediary institution is the link that bridges the underfunded and those who need funds
This article will be presented as following structures, first will be presented search related research in the lending decision making, the second part presented research that examines the borrower characteristic on lending decision making, the third part concerns the relationship lending on lending decision making and the last will be presented conclusion that outlines further research that will be needed to complete the understanding of this issue
The role of borrower characteristic information is very important on lending decision making
Summary
Financial intermediation theory states that the intermediary institution is the link that bridges the underfunded and those who need funds. The process of financial intermediation occurs when there is an imbalance situation of information between surplus and deficit (Leland and Pyle, 1977; Diamond, 1984; Fama, 1985; Diamond, 1991; Greenbaum and Thakor, 2007). How the role of borrowers characteristics information and relationship lending in the lending decision making, becomes the main question of this study. The main purpose of this article is to trace and analyze the concepts and the latest findings on the role of the borrower characteristics and relationship lending in making lending decisions. Two reviews focused on studies related to the role of loan officers and individual decision making (Andersson, 2000; Maines, 1995). These errors include being too risk averse and overstating small probabilities (Kahneman et al, 1982)
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