Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
➤ Gửi thông báo lỗi ⚠️ Báo cáo tài liệu vi phạmNội dung chi tiết: Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksl Reserve System and Wharton Financial Institutions CenterNathan H. Miller Board of Governors of the Federal Reserve SystemMitchell A. Petersen Northwestern UniversityRaghuram G. Rajan University of Chicago and NBERJeremy c. Stein Harvard University and NBERFirst draft: October 2001This draft: Decem Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksber 2001Abstract: Theories based on incomplete contracting suggest that small organizations may do better than large organizations in activities thatDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
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 Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Bankssuch 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 Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks effectively. All of this is consistent with small banks being better able (0 collect and act on soft information than large banks.The opinions expresDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
sed in this paper do not necessarily reflect those of the Federal Reserve Board or its staff. Research support from the following sources is gratefullDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksso to seminar participants at Yale University and the Federal Reserve Bank of New York, and to Abhijit Banerjee, Michael Kremer and Christopher Udry for helpful comments and suggestions.https://khothuvien.cori!I. IntroductionOne of the most enduring questions in economics was posed by Coase (1937): Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small BanksWhat determines the boundaries of the firm? The question is perhaps most often framed in terms of vertical integration—i.e., when can it make sense foDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
r upstream and downstream activities to be combined under the roof of a single firm? But one can also ask about the circumstances under which horizontDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksg consolidation raises the issue of whether the resulting large banks will behave differently than the small banks that they are displacing.A partial answer to Coase’s question comes from the work on transaction-cost economics of Williamson (1975, 1979, 1985) and Klein, Crawford and Alchian (1978). Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small BanksThese authors focus on the hold-up problems (hat can accompany market transactions, and argue that such problems can be mitigated by having the firm,Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
rather (han the market, mediate trade. While this approach is helpful in identifying the advantages of integration (i.e., a reduction in market hold-uDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksnspecified “costs of bureaucracy,” it has the awkward implication that efficiency would be best served by placing all of the economy’s assets inside a single firm.The disadvantages of integration emerge much more clearly in the property-rights approach of Grossman and Hart (1986), Hart and Moore (19 Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks90). and Hart (1995), henceforth GHM. At its most general level, the central insight of the GHM paradigm is that, in a world of incomplete contracts,Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
agents’ ex ante incentives are shaped by (he extent to which they have control or authority over physical assets. Thus, for example, if1firm A acquireDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks control rights over B’s assets. As a result, this manager’s ex ante (non-coniraclible) investment may be reduced; herein lies die potential cost of integration.The GHM property-rights paradigm is an extremely powerful conceptual tool, and it has had enormous influence on die subsequent development Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksof the theory of the film. But it has proved challenging to construct sharp, decisive empirical tests of the theory. As discussed in Whinslon (2001),Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
this is in part due to the fact that the predictions of property-rights models can be veiy sensitive to specific assumptions, such as the nature of thDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksassets as the exclusive source of power and incentives in the firm, it abstracts from other considerations that might be present in a richer, more empirically realistic model.1One strategy for dealing with these problems is to not take the original GHM models too literally as a basis for empirical t Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksesting, and to work instead with “second-generation” models that build on the basic GUM insights, but that arc more tailored to delivering clear-cut cDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
omparative sialic predictions, either lor a specific type of investment, or in a particular institutional setting. Illis strategy is followed by BakerDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks, as well as by Simcstcr and Werneriell (2000), who look at the ownership of tools in the carpentry industry.1 Such considerations include: differentially informed agents as in Aghion and 'lĩrolc (1997); incentive structures as in Holmstrom and Milgrom (1994) and Holmstrom (1999); or access to criti Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Bankscal resources as in Rajan and Zingales (1998, 2001).2In this paper, we take a broadly similar approach. In contrast to the above-mentioned authors, hoDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
wever, our focus is not on how differences in technology influence the ownership of assets. Instead, it is on how the nature of an organization affectDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Bankssmall organizations are better at carrying out certain specific tasks than large organizations.Our starting point is the model in Stein (2002). This model adopts the basic GHM insight that the allocation of control affects incentives, but does so in a setting that is more specific, and thus yields s Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksharper empirical predictions. The predictions have to do with the differing incentives that are created in large and small firms for the production anDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
d use of various kinds of information. The model implies that small firms are at a comparative advantage in evaluating investment projects when the inDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Bankss do relatively well when information about investment projects can be easily “hardened” and passed along within the hierarchy.A natural industry' to apply this model to is banking, where information is critical to the activity of lending. The model suggests that large banks will tend to shy away fr Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksom small-business lending, because this is an activity that relies especially heavily on the production of soft information, something that is not theDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
ir strong suit. For example, consider a loan officer try ing to decide whether or not to extend credit to a small start-up2 In this regard, our work IDoes Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksam users of the chemical have investment behavior that differs—in terms of responsiveness to industry price and capacity conditions— from those producers that are stand-alones. The common idea is that one can learn something useful by examining In detail how different types of organizations behave w Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Bankshen faced with similar tasks. This is a quite different approach than the standard one of trying to explain organizational form (e.g.. Integration vs.Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
non-integration) based on a variety of industry characteristics.3company that does not have audited accounting statements. The best the loan officer Does Function Follow Organizational Form? Evidence From the Lending Practices of Large and Small BanksAllen N. BergerBoard of Governors of (he Federal Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksic candidate for a “character loan.” However, given that this information is soft and cannot be verifiably documented in a report that the loan officer can pass on to his superiors, the model predicts (as is explained in more detail below) that his incentives to produce high-quality information are Does Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banksweak when he works inside a large bank.By contrast, when dealing with a larger company that has a well-documented track record, the decision of whetheDoes Function Follow Organizational Form Evidence From the Lending Practices of Large and Small Banks
r or not to extend credit can be based more heavily on verifiable information, such as the company’s income statements, balance sheet, and credit ratiGọi ngay
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