Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/110265
Authors: 
Skrastins, Janis
Vig, Vikrant
Year of Publication: 
2015
Series/Report no.: 
IMFS Working Paper Series 92
Abstract: 
This paper empirically investigates how organizational hierarchy affects the allocation of credit within a bank. Using an exogenous variation in organizational design, induced by a reorganization plan implemented in roughly 2,000 bank branches in India during 1999 - 2006, and employing a difference-in-differences research strategy, we find that increased hierarchization of a branch decreases its ability to produce "soft" information on loans, leads to increased standardization of loans and rationing of "soft information" loans. Furthermore, this loss of information brings about a reduction in performance on loans: delinquency rates and returns on similar loans are worse in more hierarchical branches. We also document how hierarchical structures perform better in environments that are characterized by a high degree of corruption, thus highlighting the benefits of hierarchical decision making in restraining rent seeking activities. Finally, we document a channel { managerial interference { through which hierarchy affects loan outcomes.
Subjects: 
Hierarchies
Soft Information
Banks
Globalization
Complexity
JEL: 
D21
D83
G21
G30
Document Type: 
Working Paper

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