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

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

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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
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
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Date Deposited: 16 Apr 2012 12:45
URL: http://eprints.lse.ac.uk/43110/

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