Filomeni, Stefano and Udell, Greg and Zazzaro, Alberto (2021) 'Hardening Soft Information: Does Organizational Distance Matter?' The European Journal of Finance, 27 (9). pp. 897-927. ISSN 1351-847X

Text Filomeni S., Udell G., and Zazzaro A., 2020 (The European Journal of Finance).pdf - Accepted Version Restricted to Repository staff only until 26 July 2022. Download (1MB) | Request a copy

Abstract

A large literature has developed on the distinction between hard and soft information with much of this literature focused on displacement of soft information with hard information. We investigate whether the propensity of loan officers at local branches to incorporate soft information in the credit scoring process is affected by the geographical distance between the branch and the bank’s headquarters. We find that hardening soft information is significantly sensitive to branch-to-headquarters distance. We also find that organizational distance affects time for loan approval, increasing approval time for applicants receiving a good credit score (i.e., low probability of default) originated at distant branches and reducing approval time for applicants with poor credit scores (i.e., high probability of default). Finally, we find that on average organizational distance has no direct impact on the likelihood of the occurrence of negative credit events. However, the final rating being equal, the hardening of soft information has an influence on loan performance that varies with organizational distance. Overall, our findings are consistent with the presence of spatially-based communication frictions within banking organizations.

Item Type:	Article
Uncontrolled Keywords:	credit scoring; soft information; hard information; communication problems; bank organization
Divisions:	Faculty of Social Sciences Faculty of Social Sciences > Essex Business School Faculty of Social Sciences > Essex Business School > Essex Finance Centre
SWORD Depositor:	Elements
Depositing User:	Elements
Date Deposited:	03 Nov 2020 15:32
Last Modified:	06 Jan 2022 14:19
URI:	http://repository.essex.ac.uk/id/eprint/29028

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