Do Loan Officers’ Incentives Lead to Lax Lending Standards?
نویسندگان
چکیده
We study a controlled corporate experiment in which loan officers was altered from fixed salary to volume-based pay. The incentives increased aggressiveness of origination: higher origination rates (+31%), loan sizes (+15%), and default rate (+28%). The effects are partly driven by moral hazard: approval decision is driven by loan officers’ discretion; however, default is uncorrelated with discretion. Default rate is higher when discretion is used to accept loans and when loan terms are unfoundedly aggressive. End-of-month approvals (i.e., larger marginal bonus) are more likely to default. Marginal originated loans have a negative net present value.
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