Information and incentives inside the firm: evidence from loan officer rotation

Hertzberg, Andrew, Liberti, Jose Maria and Paravisini, Daniel ORCID: 0009-0006-8803-8442 (2010) Information and incentives inside the firm: evidence from loan officer rotation. Journal of Finance, 65 (3). pp. 795-828. ISSN 0022-1082

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Abstract

We present evidence that reassigning tasks among agents can alleviate moral hazard in communication. A rotation policy that routinely reassigns loan officers to borrowers of a commercial bank affects the officers' reporting behavior. When an officer anticipates rotation, reports are more accurate and contain more bad news about the borrower's repayment prospects. As a result, the rotation policy makes bank lending decisions more sensitive to officer reports. The threat of rotation improves communication because self-reporting bad news has a smaller negative effect on an officer's career prospects than bad news exposed by a successor.

Item Type:	Article
Official URL:	http://www.afajof.org/
Additional Information:	© 2010 The American Finance Association
Divisions:	Finance
Subjects:	H Social Sciences > HG Finance
JEL classification:	G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
Date Deposited:	16 Apr 2012 12:45
Last Modified:	06 Nov 2024 03:12
URI:	http://eprints.lse.ac.uk/id/eprint/43110

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