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Commercial lending concentration and bank expertise: Evidence from borrower financial statements

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  • Berger, Philip G.
  • Minnis, Michael
  • Sutherland, Andrew

Abstract

Lending concentration features prominently in models of information acquisition by banks, but empirical evidence on its role is limited. Using bank-level loan exposures, we find banks are less likely to collect audited financial statements from firms in industries and regions in which they have more exposure. These findings are stronger in settings in which adverse selection is acute and muted when the bank lacks experience with an exposure. Our results offer novel evidence on how bank characteristics are related to the type of financial information they use and support theoretical predictions suggesting portfolio concentration reveals a bank's relative expertise.

Suggested Citation

  • Berger, Philip G. & Minnis, Michael & Sutherland, Andrew, 2017. "Commercial lending concentration and bank expertise: Evidence from borrower financial statements," Journal of Accounting and Economics, Elsevier, vol. 64(2), pages 253-277.
    • Handle: RePEc:eee:jaecon:v:64:y:2017:i:2:p:253-277
    DOI: 10.1016/j.jacceco.2017.06.005
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    More about this item

    Keywords

    Commercial lending; Monitoring; Information economics; Lending concentration; Financial statements; Bank regulation; Auditing; Hard and soft information; Theory of the firm;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • M40 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Accounting - - - General
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • L14 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Transactional Relationships; Contracts and Reputation

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