Does function follow organizational form? Evidence from the lending practices of large and small banks

Allen N. Berger; Nathan Miller; Mitchell A. Petersen; Raghuram G. Rajan; Jeremy C. Stein

doi:10.1016/j.jfineco.2004.06.003

Journal of Financial Economics Vol. 76 No. 2 2005

Does function follow organizational form? Evidence from the lending practices of large and small banks

Allen N. Berger^1,2; Nathan Miller³; Mitchell A. Petersen⁴; Raghuram G. Rajan⁵; Jeremy C. Stein⁶

¹ Federal Reserve · ² Federal Reserve Board of Governors · ³ University of California, Berkeley · ⁴ Northwestern University · ⁵ University of Chicago · ⁶ Harvard University

Abstract

Theories based on incomplete contracting suggest that small organizations have a comparative advantage in activities that make extensive use of “soft” information. We provide evidence consistent with small banks being better able to collect and act on soft information than large banks. In particular, large banks are less willing to lend to informationally “difficult” credits, such as firms with no financial records. Moreover, after controlling for the endogeneity of bank-firm matching, we find that large banks lend at a greater distance, interact more impersonally with their borrowers, have shorter and less exclusive relationships, and do not alleviate credit constraints as effectively.

DOI: 10.1016/j.jfineco.2004.06.003
Volume: 76
Issue: 2
Pages: 237-269
Language: en
Sources: bibtex:phds-export.bib openalex crossref

Does function follow organizational form? Evidence from the lending practices of large and small banks

Abstract

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