Hertzberg, Andrew, Liberti, Jose Maria and Paravisini, Daniel (2010) Information and incentives inside the firm: evidence from loan officer rotation. The Journal of Finance, 65 (3). pp. 795-828. ISSN 0022-1082
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 |
| Library of Congress subject classification: | H Social Sciences > HG Finance |
| Journal of Economic Literature Classification System: | G - Financial Economics > G2 - Financial Institutions and Services > G21 - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages |
| Sets: | Departments > Finance Collections > Economists Online |
| Date Deposited: | 16 Apr 2012 12:45 |
| URL: | http://eprints.lse.ac.uk/43110/ |
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