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

Hertzberg, Andrew and 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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Identification Number: 10.1111/j.1540-6261.2010.01553.x

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
Subjects: H Social Sciences > HG Finance
Sets: Departments > Finance
Collections > Economists Online
Date Deposited: 16 Apr 2012 12:45
Last Modified: 08 Nov 2012 17:02
URI: http://eprints.lse.ac.uk/id/eprint/43110

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