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Soft Information Production In Sme Lending

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  • Belinda L. Del Gaudio
  • Mark D. Griffiths
  • Gabriele Sampagnaro

Abstract

We analyze the determinants of soft information production on bank clients assuming that this information is collected through close contact with borrowers. After classifying contacts based on the initiator and the location of the lender–borrower meetings, we find that banks have more direct contact with firms characterized by low risk and low use of their banking products, indicating that there may also be commercial reasons for such contact. Our findings suggest that the production of soft information may follow a quality selection process in which banks prefer to strengthen relationships with clients characterized by low risk and low use of their products. We provide additional evidence of the role of soft information in ongoing interactions between banks and borrowers. Banks that initiate contacts at the firm location result in future lower risk, lower spreads, and increased product sales.

Suggested Citation

  • Belinda L. Del Gaudio & Mark D. Griffiths & Gabriele Sampagnaro, 2020. "Soft Information Production In Sme Lending," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 43(1), pages 121-151, March.
    • Handle: RePEc:bla:jfnres:v:43:y:2020:i:1:p:121-151
    DOI: 10.1111/jfir.12198
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    Cited by:

    1. Stefano Filomeni & Udichibarna Bose & Anastasios Megaritis & Athanasios Triantafyllou, 2024. "Can market information outperform hard and soft information in predicting corporate defaults?," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 29(3), pages 3567-3592, July.
    2. Srinivas Nippani & Ran Ling, 2021. "Bank size and performance: An analysis of the industry in the United States in the post‐financial‐crisis era," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 44(3), pages 587-606, September.

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