Discussion Paper Series 2012-E-7

Authority and Soft Information Production within a Bank Organization

Masazumi Hattori, Kohei Shintani, Hirofumi Uchida

We ask three questions to clarify the production of soft information and decision making within a bank organization: (1) In a hierarchical ladder within a bank organization, who has more soft information on borrowers (repository of soft information) and does the answer differ depending on bank- and/or firm-specific factors?; (2) In the hierarchical ladder, who makes a decision to grant loans (decision maker) and does the answer have bank- and/or firm-specificity?; (3) Does the authority distance between the repository of soft information and the decision maker reduce the benefit from the bank-firm relationship? Our empirical findings are the following: (1) Branch managers rather than loan officers have sufficient soft information on borrowers, and the repository is located at a higher level in the hierarchy for smaller banks; (2) Branch managers and executives in the headquarters have decision-making authority, but more authority is delegated at a lower level in the hierarchy for larger banks; and (3) A greater authority distance is harmful for borrowers because it invites more financial constraints.

Keywords: Authority; Soft information; Organizational structure; Banks

Views expressed in the paper are those of the authors and do not necessarily reflect those of the Bank of Japan or Institute for Monetary and Economic Studies.

Copyright © 2012 Bank of Japan All Rights Reserved.

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