Loan Officer Reliance on Hard Information: Empirical Investigation on the Role of Banking Competition

Mercredi | 2013-03-06


Using a unique data set of credit file retrieved from one of the three major French banks, we investigate whether banking competition affects the loan officer production of particular form of information considering the whole of bank-firm relationship framework. Our data set allows us to introduce direct measure of hard and soft information used by loan officer during the credit underwriting process, as well as the other sources of bank revenues from its relationship with firms such as its prior credit extension, its saving services provided, and the sale of arm’s length services to them. We show that the amount of bank revenues from the saving related activities with firm increases the loan officer’s production of soft information. We follow Hannan (1997) by decomposing the HHI into two terms; we found that both the number of lender relationships and bank financing share affect the information generated by the loan officer by reducing the value of soft information produced by him. Further, the different outcomes of our empirical study provide evidence that competition increases the loan officer reliance to hard information to the detriment of soft information.