Soft Information’s Role in Lending Decisions

Abstract

In this chapter, the authors interpret the empirical results from soft information usage’s effects on lenders’ decision making, especially concerning SMEs in regional banks as presented in Chap. 4. This chapter also interprets empirical evidence regarding interbank competition’s influence on lender performance in the context of soft information usage. Soft information takes on abstract and elusive characteristics, and is considerably uncertain at the beginning of its collection. First, the results indicate that lenders encouraging intimate personal interactions that gather internally stored information—as exemplified by the firm’s business plan and its managerial abilities to enforce and implement this plan within the firm—gain an enormous advantage in terms of profitability, specifically in interbank competition. Internally stored information is conceptualized as related to soft information in business and management leadership. As soft information knowledge spreads throughout local areas, it is easier for competitors and entrants to intervene in the extant lender–borrower relationship. Second, the empirical evidence illustrates that soft information from networks or appliances/partnerships generally leads to lenders’ profitability, and further achieves a substantially greater effect in interbank competition compared to non-competitive markets.