Bank Loan Decisions Research Articles

Does managerial ability affect bank loan pricing?

This research reveals that the competence of managers significantly shapes bank loan decisions, leading to favorable terms, including lower loan interest rates, for enterprises helmed by capable leaders. Mechanism tests illustrate that the impact of managerial capabilities on bank loan interest rates is achieved by mitigating corporate risk, enhancing the quality of corporate information, and mitigating agency conflicts. Further exploration indicates that the influence of managerial capabilities on reducing loan interest rates is more prominent in the context of private enterprises, those without industrial policy support, and businesses navigating environments characterized by heightened banking competition. This study contributes to the existing literature on the nexus between managerial capabilities and loan interest rates.

What firm risk factors drive bank loan pricing and other terms? Evidence from China

AbstractThis study investigates how firm risk factors affect bank loan pricing. Although firm‐specific stock price crash risk affects bank loan costs directly, it also prompts other risks, including financial restatement and litigation, which in turn trigger higher bank loan costs. Strong internal and external governance mechanisms help reduce agency problems and improve information transparency, alleviating the adverse effect of stock price crash risk on loan costs. Our results confirm that bankers take good corporate governance into account in their bank loan decisions. We also show that bond investors price the adverse effect of stock price crash risk, prompting higher corporate bond costs. Futher evidence suggests that banks impose stricter non‐price terms, such as smaller loan size, shorter loan maturity, and a higher likelihood of collateral requirement, on firms with higher crash risk.

Neuro - Geometry in Bank Loan Decisions

Neuro - Geometry in Bank Loan Decisions

Neuro - Geometry in Bank Loan Decisions

Neuro - Geometry in Bank Loan Decisions

Neuro-Geometry in Bank Loan Decisions

Bank loan judgement-making is a region of intense study in neuro-geometrical managerial science. In real world, bank loan judgement processes and judgements emerge from complexly interlinked web of parameters, agents and decisional elements. There is a causal (forward-backward posturing) relationship amongst these constituents. Explorations like how brain absorbs information, identifies and borders problematical situations and finally indicates apposite responses consider various sources of data and evidence before sanctioning a judgement. Brain imaging technologies have motivated neuro-geometrical scholarship of internal order of mind and connotations with bandwidth of (bank loan)judgements. Imaging, a significant aspect of dynamic capability, exhibits cumulative quantum of evidence as regards evolutionary architectures in decision spectrum. How does the manager decide on a loan application? What all processes torrent across the span of hi brain? What limitations and restrictions boundary his neuro-geometrical dynamics? Does preceding familiarity of endorsing loans influence his computing results? There are some identifiable questions, though some have signatures of supporting a hypothesized solution. This paper attempts to report contemporary stride of advances to reconnoiter phenomena through managerial decision action, bank loan judgement-making and reasoning processes. Objective is to set forth a prototypical argument for bank loan judgement, in which interaction between neuro-neuro-geometrical aspects of loan judgement processes are indicated through calibration of brain activity at time of loan judgements. Attempt is towards linking neuro-geometrical-psycho and loan administration perspectives of predicting observed comportment. This provides architectural frame for understanding managerial loan decisional administration at intersection of neuro-geometrical managerial science, loan administration and psychology linking and spanning numerousechelons of exploration.

Credit provision by banks: a case study analysis of small businesses in South Africa

Small business sector is considered as an important economic driver by many countries. In South Africa, small business sector has been acknowledged as the driving force to boost the economic growth and an important source of job creation. This article aims at identifying factors that are a challenge in obtaining bank finance by small businesses in South Africa.Primary data for this study involved a survey questionnaire directed to owners of small businesses operating in Ekurhuleni Metropolitan area, Gauteng, South Africa. Factors that were deemed to influence bank loan decision were examined. The research findings revealed that factors such as age of business, business plans availability, educational background of business owner, experience of business owner and availability of a collateral have an influence on the bank loan decisions. This research also found that the accessibility of loan funding from banks was a constraint on business operations and growth. The findings of this study indicate that the mentioned factors are a challenge for small businesses in accessing bank loans to fund their operations.The findings of this study will be of great value to small business owners and policy makers in finding solutions to address the identified barriers.

An Illustration of Five Principles for Integrated Process and Decision Modelling (5PDM)

This technical report discusses an application example of integrated process and decision modelling guidelines aimed at consistently integrating process and decision model. The process models are depicted by the Business Process Model and Notation (BPMN), while the decision model is represented using the newly introduced Decision Model and Notation (DMN) standard of the Object Management Group (OMG). The example in this report revolves around an integration of a blank loan approval process with its underlying bank loan decision model. The process model is iteratively adopted to conform to the proposed Five Principles for integrated Process and Decision Modelling (5PDM), thus rendering the process consistent with the underlying decision model.

Determinants of Saving-Borrowing Decisions and Financial Inclusion in a High Middle Income Country: The Turkish Case

ABSTRACTWe use a representative survey of the Turkish household sector and investigate factors impinging on saving-borrowing behavior. We run four probit regressions to elucidate (i) the saving decision, (ii) asset choice or portfolio composition for those who save, (iii) the bank loan decision and lastly (iv) the formal versus informal borrowing decision. We find income, education, marital status and region within country strongly correlate with those decisions. We offer some insights regarding the influence of variables like rural to urban migrant status and religious belief on saving and borrowing decisions. We discuss the long-term implications of our findings on the Turkish household savings performance.

A fuzzy AHP and DEA approach for making bank loan decisions for small and medium enterprises in Taiwan

Due to the competition among financial institutions has become fiercer in Taiwan now, each bank not only provides varied service, but also attracts consumers with low price by all means. However, the derivative problem may unable to be handled by the bank – the problem in high ratio of overdue loaning. According to the statistics by small and medium enterprises office in economic department, over 90% of Taiwan enterprises are small and medium with its financing share reaching 30% of the overall enterprise loaning. It has significant influence on banks’ saving and loaning business. Therefore, this article researches on small and medium enterprises, by using Fuzzy Analytic Hierarchy Process (FAHP) to choose the important index in loaning evaluation, establish one complete and efficient loaning decision-making module with its weights and Data Envelopment Analysis (DEA), and make effective protection against high ratio of overdue loaning. A practical case study demonstrates the effectiveness of the proposed methodology.

Monetary policy with a touch of Basel

The unfolding subprime crisis and the challenges facing central banks in using monetary policy to resolve the possible credit crunch, highlight the importance of understanding the relationship between monetary policy and risk-based capital requirements. We explore the implications of risk-based capital requirements, à la Basel, for the conduct of monetary policy. A “bank balance-sheet channel” of monetary policy is identified, which operates through bank capital and influences the bank's loan decision. Using a dynamic banking model, we endogenize the capital decision and show that banks are likely to hold capital above the regulatory minimum to avoid being constrained. We derive the option value of holding capital, and show how this value is affected by monetary policy, level of economic activity, structure of the banking industry, and by changes in the level of regulatory capital.

When counting proved not to wash

PurposeThe purpose of this paper is to question our faith in numbers. It asks how much credibility can numbers and quantification of data offer us as researchers?Design/methodology/approachThe research asked the question “Does gender matter?” in the case of banks lending to male and female business owners. To test this the bank loan officers were given an identical fictional bank loan proposal from either Jack or Emma Jones. It was assumed that the more positive statements made, the more likely there would be a positive decision to lend to either Jack or Emma.FindingsThe main finding was that no link was found between the number of positive statements made and the final decision on whether or not to lend to either gender. While counting, we assume, injects precision into analysis, in this case it provided no support for the existence of a relationship between the numbers of positive statements and final decision on whether or not to lend. Some reasons are presented.Research limitations/implicationsThe paper features a small sample of 35 interviews. It would be interesting to see if this same finding is replicated in other studies of bank loan decision making using bank loan proposals and investigating the effect of gender on decisions.Originality/valueThis research builds upon the 1993 research of Fay and Williams.

The Effects of the Level of Assurance, Accounting Firm, Capital Structure, and Bank Size on Bank Lending Decisions

This study examines the effect of the type of accounting service (audit, review, compilation, and no report), the accounting firm providing the service, the capital structure of the borrower, and the bank size on loan officers' lending decisions. The findings show the level of service had an impact on the amount of the loan, but not on the interest rate awarded nor on the decision whether or not to grant a line of credit. The accounting firm (large international with good reputation versus local with unknown reputation) providing the accounting service, however, did not significantly affect the bank loan decision. Capital structure of the borrower had a significant impact on the decision to grant a line of credit, the loan size, and the interest rate. In addition, the loan size and interest rate were significantly influenced by the size of the bank granting the loan.

Customer perceptions of justice in service transactions: the effects of strong and weak ties

AbstractThis research used a justice perspective to investigate the effects of outcome favorability, opportunity for voice, and interpersonal treatment in a service context. Results suggest that all three variables influenced customer reactions to bank loan decisions. Weak‐tie customers were more sensitive to outcome favorability than strong‐tie customers. Strong‐tie customers were more sensitive to opportunity for voice than weak‐tie customers. Implications for improving customer reactions to service transactions are discussed. Copyright © 2001 John Wiley & Sons, Ltd.

Demographics in Service Encounters: Effects of Racial and Gender Congruence on Perceived Fairness

We investigated the effects of outcome favorability, opportunity for voice, and demographic congruence on customer reactions to bank loan decisions. Applicants for loans engaged in a transaction with loan officers who were either congruent or incongruent with respect to race and gender. Results suggest that perceptions of outcome favorability and opportunity for voice explain significant variance in customer reactions. Customers responded more positively to unfavorable outcomes when they resulted from a race-congruent loan officer, and female customers responded more positively to low opportunity for voice from male loan officers than from female officers. Implications of the results for organizations serving customers who are diverse in race and gender are discussed.

The Reliability of Perception-Based Annual Report Disclosure Studies

Abstract A number of annual report disclosure-based studies have gathered perceptions from users and preparers about the relative importance of information items for an investment or bank loan decision. The paper investigates the presence of non-trivial consistency in perceptions on 63 information items across 11 studies over a period of 16 years in six countries, and across six user-preparer groups. A meta-theory paradigm is used to cumulate findings across this broad spectrum of time and culture. Five hypotheses are tested and perception data are examined by item, time dimension, and user-preparer groups. Perception consensus is present on approximately 30% of the items-in-common, and between user-preparer groups on most items.

Uncertainty and culture in bank loan decisions

Simulations of loan applications were evaluated by senior bank executives in terms of their prospects for approval and risk to determine the influence of organizational culture and payback uncertainty on loan decisions. The influence of the participating banker's decision style, based on the Jungian typology, was also determined. Eight simulated loans were constructed that had four types of cultures and high or low uncertainty in pay back prospects. Evaluations of the ratings of these loans found that culture was a more important determinant of loan approval and risk assessment than either uncertainty or the banker's personal decision style. Bankers in an analytic culture were inclined to approve loans. In a consultative or speculative culture bankers were more apprehensive but would make these same loans. In a charismatic culture bankers were unsure about the advisability of making the same loans. The implications of these findings for improved practice in bank loan decision making are discussed.

The Effects of Task Size and Similarity on the Decision Behavior of Bank Loan Officers

Research on decision-making behavior has shown that decision strategies used by individuals are contingent upon the characteristics of the task. For example, as the task size (i.e., the number of alternatives and/or the number of dimensions describing each alternative) increases, individuals tend to quickly eliminate alternatives that do not meet a criterion level for any dimension (i.e., they adopt a noncompensatory decision strategy, in which a high value on one dimension cannot offset or compensate for a low value on another dimension). Most of this research has involved consumers making buying decisions. The purpose of the research reported here was to determine if contingent decision behavior extends to experts (experienced bank loan officers) making business decisions (loan decisions). In this study two task characteristics (task size, and similarity of loan profiles describing alternatives) were varied in a bank loan decision context. Two process tracing methods (information boards and think-aloud verbal protocol analysis) were used to obtain evidence of how eleven bank loan officers made choices among alternative loan candidates. Of particular interest was the effect that changes in task characteristics had on loan officers' decision strategies. The results indicated that when faced with tasks of increasing size, loan officers adapted their behavior in a manner consistent with an increased use of noncompensatory decision strategies. In contrast, when the loan profiles of candidate companies were similar loan officers exhibited an increased use of compensatory strategies. It was also found that when both the task size and similarity of alternatives were varied loan officers adapted their behavior as if they processed these characteristics serially. These results indicate that contingent behavior associated with the two types of task characteristics may be quite different. A priori, there was reason to believe that expert loan officers would not exhibit contingent decision behavior. The fact that their decision strategies were contingent upon task characteristics has important implications for managerial practice and research. First, the results have design implications for information and decision support systems for lending institutions. Second, future research should investigate the consequences of serial processing of task characteristics.

Forecasts, Auditor Review, and Bank Loan Decisions

Since the 1970s, policymakers' have struggled with the issue of management disclosures of forecast information. The basic question is whether public reporting policy should prohibit forecast disclosures, allow them on a voluntary basis, or make them mandatory. Advocates of disclosure have argued that the availability of inside information and expertise places management in a position to provide useful information relevant to valuing securities. Opponents consider forecasts to be costly, noisy, and unreliable signals which invite manipulation. Largely in reaction to the forecast reliability issue, the American Institute of Certified Public Accountants (AICPA) recently developed standards which allow auditors to review forecasted financial statements (AICPA [1980]). However, little evidence exists on the various effects (if any) of this type of auditor association with forecasts. The purpose of this paper is to report the results of a field study which investigated whether auditor associations with forecasts affected the judgments of CPAs and bank loan officers. Our results indicate that CPAs' judgments were relatively more affected than those of loan officers. In the next section we review the pertinent research which supports the notion that forecasts provide information to investors and credit grantors. We then review the limited research on whether auditor involvement with forecasts has a beneficial effect on their information

Confidence Interval Financial Statements: An Empirical Investigation

Conventional financial statements present quantitative financial information about an entity in the form of single point estimates. Accordingly, they do not include a quantitative measure of the uncertainty inherent in these point estimates. In this paper, I present the results of a study which attempted to determine the effect of a quantitative measure of uncertainty on a sample of commercial bank loan decisions. Traditionally, the commercial bank loan officer has used financial statements to evaluate the risk of a loan. Evidence on the usefulness of financial statements in this regard has been provided by Beaver [1966; 1968] and Altman [1968], among others. The point of issue in this study, however, is whether a quantitative measure of the uncertainty in accounting numbers, such as a confidence interval, influences a loan officer's evaluation of the risk associated with a loan.1