Abstract
A vast literature has emphasized that small banks are at a comparative advantage in small business lending. In this paper, we show that apart from size, which is negatively correlated with bank specialization in small business lending, organizational characteristics affect bank loan portfolio choices. By using a unique dataset based on a recent survey of Italian banks, we find that after having controlled for bank size, a branch loan officer’s authority has a key role in explaining bank specialization in small business lending. In particular, banks which delegate more decision-making power to their branch loan officers are more willing to lend to small firms than other banks. We approximate loan officers’ authority by controlling for several factors which shape their incentives: loan officer turnover, the amount of money up to which they are allowed to lend autonomously, their role in loan approval and in setting loan interest rates, the kind of information (soft versus hard information) used for screening and monitoring borrowers, and the structure of their compensation schemes.
Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
