(Loan) price and (loan officer) prejudice

Abstract

Although the role of loan officers in the credit process has been extensively discussed in the literature, their individual prejudices have been neglected. The literature on decision making relies on the assumption that all loan officers perceive and use information similarly, regardless of their individual and psychological backgrounds. We challenge this assumption by investigating how loan officers’ prejudices toward the information used in the decision process affect loan spreads. Using data on corporate loans from a large French bank, we document the influence of discrepancies in loan officers’ prejudices according to the type of information they consider. Our results suggest that loan officers’ prejudices not only significantly affect loan outcomes but also play a moderating role in the use of information. We also show that loan officers’ and borrowers’ characteristics influence these effects.