Financial incentives and loan officer behavior: multitasking and allocation of effort under an incomplete contract : [version: July 04, 2014]

  • In this paper we investigate the implications of providing loan officers with a compensation structure that rewards loan volume and penalizes poor performance versus a fixed wage unrelated to performance. We study detailed transaction information for more than 45,000 loans issued by 240 loan officers of a large commercial bank in Europe. We examine the three main activities that loan officers perform: monitoring, originating, and screening. We find that when the performance of their portfolio deteriorates, loan officers increase their effort to monitor existing borrowers, reduce loan origination, and approve a higher fraction of loan applications. These loans, however, are of above-average quality. Consistent with the theoretical literature on multitasking in incomplete contracts, we show that loan officers neglect activities that are not directly rewarded under the contract, but are in the interest of the bank. In addition, while the response by loan officers constitutes a rational response to a time allocation problem, their reaction to incentives appears myopic in other dimensions.

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Metadaten
Author:Patrick BehrGND, Alejandro Drexler, Reint GroppGND, André GüttlerGND
URN:urn:nbn:de:hebis:30:3-347467
URL:http://papers.ssrn.com/sol3/papers.cfm?abstract_id=2466294
DOI:https://doi.org/10.2139/ssrn.2466294
Parent Title (English):SAFE working paper series ; No. 62
Series (Serial Number):SAFE working paper series (62)
Publisher:SAFE
Place of publication:Frankfurt am Main
Document Type:Working Paper
Language:English
Year of Completion:2014
Year of first Publication:2014
Publishing Institution:Universitätsbibliothek Johann Christian Senckenberg
Release Date:2014/08/12
Tag:incentives; loan officer; loan origination; monitoring; screening
Issue:Version 4 Juli 2014
Page Number:53
HeBIS-PPN:348929269
Institutes:Wirtschaftswissenschaften / Wirtschaftswissenschaften
Wissenschaftliche Zentren und koordinierte Programme / House of Finance (HoF)
Wissenschaftliche Zentren und koordinierte Programme / Center for Financial Studies (CFS)
Wissenschaftliche Zentren und koordinierte Programme / Sustainable Architecture for Finance in Europe (SAFE)
Dewey Decimal Classification:3 Sozialwissenschaften / 33 Wirtschaft / 330 Wirtschaft
Sammlungen:Universitätspublikationen
Licence (German):License LogoDeutsches Urheberrecht