Playing the devil's advocate: : The causal effect of risk management on loan quality

• Autores: Tobias Burg
• Localización: Review of Financial Studies, ISSN-e 1465-7368, Vol. 28, Nº. 12, 2015, págs. 3367-3406
• Idioma: inglés
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• Resumen

  • This paper studies the dual role of risk managers and loan officers in a bank's organizational structure. Using 75,000 retail mortgage applications, I analyze the effect of risk-management involvement on loan default rates. The bank requires risk-management approval for loans that are considered risky based on hard information, using a sharp threshold that changes during the sample period. Using a regression discontinuity design and a difference-in-differences estimator, I am able to show that risk-management involvement reduces loan default rates by more than 50%. My findings suggest that a two-agent model can help to facilitate efficient screening decisions