Who receives bank loans? A study of lending officers' assessments of loans to growing small and medium-sized enterprises

Abstract: This thesis explores factors that influence lending officers' assessments of credit requests from growing small and medium-sized enterprises (SMEs). Building on asymmetric information theory, factors identified in previous research are grouped into the theoretical categories of risk-assessment, risk-alignment, and risk-shifting. Hypotheses are developed as to what influences lending officers' credit assessments. In addition, it is hypothesized that risk-taking proclivity interacts with other variables. A conjoint experiment involving 114 lending officers is used to test the hypotheses, which are, by and large, supported by the data.Furthermore, the study investigates how individual differences in experience among lending officers affect the credit assessments, e.g., more experienced lending officers use more sophisticated decision policies involving interactions. When the results from the experiments were compared with the lending officers' self-perceived assessments, it was discovered that lending officers have limited insight into their own credit assessments.The findings of this study have implications for SMEs, lending officers, and lending organizations. The results can assist SMEs to better tailor loan applications. Banks can use the results to make comparisons with their existing credit guidelines, which could assist them in improving their decision-making.The three theoretical categories identified provide a foundation for future research on bank lending to SMEs. The developed model can facilitate empirical research on bank lending under asymmetric information by providing a structure and categorizing previous research into relevant categories.