How organizational hierarchy affects information production

Arbeitspapier

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.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: IMFS Working Paper Series ; No. 92

Classification and Topics

• Classification: Wirtschaft ; Firm Behavior: Theory ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Banks; Depository Institutions; Micro Finance Institutions; Mortgages ; Corporate Finance and Governance: General
• Subject: Hierarchies ; Soft Information ; Banks ; Globalization ; Complexity

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Skrastins, Janis ; Vig, Vikrant
• Event: Veröffentlichung
• (who): Goethe University Frankfurt, Institute for Monetary and Financial Stability (IMFS)
• (where): Frankfurt a. M.
• (when): 2015

Further information

• Handle: http://hdl.handle.net/10419/110265
• URN: urn:nbn:de:hebis:30:3-374847
• Last update: 10.03.2025, 11:43 AM CET