Loan Officers and Relationship Lending

Author Name UCHIDA Hirofumi  (Faculty of Economics, Wakayama University) /Gregory F. UDELL  (Kelley School of Business, Indiana University) /YAMORI Nobuyoshi  (School of Economics, Nagoya University)
Creation Date/NO. June 2006 06-E-031
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Theoretical and empirical work suggests that commercial loan officers play a critical role in relationship lending by producing soft information about their SME borrowers. We test whether loan officers in the Japanese SME loan market perform this role in a manner that is consistent with the theoretical predictions in the relationship lending literature. While we find limited evidence that soft information may benefit SME borrowers, we do not find evidence that is on balance consistent with theoretical predictions that loan officers produce soft information that is not easily transmitted to others within the bank. These results are consistent with alternative explanations including the possibility that the social environment in Japan leads to a credit culture where it is easier to transmit soft information from one loan officer to another. It could also be consistent with the possibility that the relationship lending may not be particularly important in the Japanese SME loan market.