What Begets Loan Performance? The Human Factor in the Corporate Lending Market

Abstract

We examine the role of loan officers in the private debt market. We construct a comprehensive database that allows us to track the employment history, performance and lending terms related to over 7,000 loan officers employed by major U.S. corporate lending departments from the period spanning 1994 to 2012. We find evidence consistent with loan officers having a substantial impact on ex-post loan performance, after controlling for observable lending terms, borrower, bank, and industry characteristics. Moreover, loan officers also appear to be more important than banks in explaining the variation of loan performance. We further show that loan officers exhibit heterogeneous loan origination styles as reflected in their lending terms and these styles appear to be associated with loan performance. Finally, we find that loan officers play an equally important role in both large banks and small banks and that their future lending performance is highly influenced by early employment choices. Overall, our study highlights the importance of human capital in the corporate lending market.