Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small Banks / Allen N. Berger, Nathan H. Miller, Mitchell A. Petersen, Raghuram G. Rajan, Jeremy C. Stein.

Format:

Book

Author/Creator:

Berger, Allen N.

Contributor:

National Bureau of Economic Research.

Miller, Nathan H.

Petersen, Mitchell A.

Rajan, Raghuram G.

Stein, Jeremy C.

Series:

Working Paper Series (National Bureau of Economic Research) no. w8752.

NBER working paper series no. w8752

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2002.

Summary:

Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities that require the processing of soft information. We explore this idea in the context of bank lending to small firms, an activity that is typically thought of as relying heavily on soft information. We find that large banks are less willing than small banks to lend to informationally 'difficult' credits, such as firms that do not keep formal financial records. Moreover, controlling for the endogeneity of bank-firm matching, 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. All of this is consistent with small banks being better able to collect and act on soft information than large banks.

Notes:

Print version record

January 2002.