Journal of Accounting and Economics Vol. 68 No. 2-3 2019
Making sense of soft information: interpretation bias and loan quality
Abstract
We explore whether cognitive constraints and behavioral biases impede the processing and interpretation of soft information in private lending. Using data from a credit union's internal reporting system, we delineate three constraints and biases likely to affect lending decisions: limited attention, task-specific human capital and common identity. We find that soft information leads to worse loan quality when loan officers are busy or before weekends and around national holidays; when they have prior sales experience; and when both the officers and borrowers are men. We provide evidence of non-agency-related costs in the use of soft information in lending decisions.
- DOI
- 10.1016/j.jacceco.2019.101240
- Volume
- 68
- Issue
- 2-3
- Pages
- 101240
- Language
- en
- Sources
- bibtex:phds-export.bib crossref openalex