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1 – 10 of over 23000Amirhossein Taebi Noghondari and Soon‐Yau Foong
This study aims to investigate the effects of individual knowledge/experience on the audit expectation gap of loan officers in Malaysia and the subsequent effect of the audit…
Abstract
Purpose
This study aims to investigate the effects of individual knowledge/experience on the audit expectation gap of loan officers in Malaysia and the subsequent effect of the audit expectation gap on their loan decision quality. In addition, the mediation role of the audit expectation gap is examined.
Design/methodology/approach
Copies of a structured questionnaire were randomly distributed to three hundred and twenty loan officers of the top four commercial banks in Malaysia. A total of 212 completed questionnaires were analysed using structural equation modelling.
Findings
The findings indicate that the knowledge/experience factors could significantly mitigate the audit expectation gap. More importantly, the audit expectation gap is found to adversely affect the loan decision quality. The mediating role of the audit expectation gap is also supported.
Research limitations/implications
The findings of this study may not be generalizable to other economic, cultural and political settings.
Practical implications
Banks may narrow their loan officers' audit expectation gap and hence, their non‐performing loans through selective recruitment or appropriate knowledge/skill enhancement in‐house training programmes.
Originality/value
This study provides the needed empirical evidence of the adverse effect of audit expectation gap on the loan decision quality of bank officers in Malaysia. Unlike the 2009 findings of Noghondari and Foong, which was based on an Islamic banking context in Iran, this study, which was based on the conventional banking context, found that accounting‐related and job‐related work experience of bank officers had significantly mitigated the audit expectation gap. The findings have important implications on the recruitment and training of loan officers by banks.
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Magnus Jansson, Magnus Roos and Tommy Gärling
This paper aims to investigate whether loan officers' risk taking in credit decisions are associated with their personal financial risk preference and personality traits or solely…
Abstract
Purpose
This paper aims to investigate whether loan officers' risk taking in credit decisions are associated with their personal financial risk preference and personality traits or solely with bank-contextual and loan-relevant factors.
Design/methodology/approach
An online survey administered in six large Swedish banks to 163 loan officers responsible for assessing credit risk and approval of loan applications. The loan officers rated their likelihood of approving fictitious loan applications from business companies.
Findings
The loan officers' credit risk taking is associated with bank-contextual factors, directly with perceived organizational credit risk norms and indirectly with self-confidence in assessing credit risks through attitude to credit risk taking. A direct association is also found with personal financial risk preference but not with personality traits.
Research limitations/implications
Increased awareness of that loan officers' personal financial risk preference is associated with their credit risk taking in loan decisions but that the banks' risk policy has a stronger association. Banks' managements and boards should therefore assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.
Practical implications
Increased awareness of that loan officers' credit risk taking is associated with personal financial risk preference but more strongly with the banks' risk policy that motivate banks' managements and boards to assure that their credit risk policy is implemented, followed and being aligned with their performance incentives.
Originality/value
The first study which directly compare the associations of loan officers' risk taking in credit approvals with personal risk preference and personality traits versus bank-contextual factors and loan-relevant information.
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It is evident that, in many countries, banking is in the process ofsignificant structural change. Deregulation in the 1980s has led toincreased competition among banks. By mimetic…
Abstract
It is evident that, in many countries, banking is in the process of significant structural change. Deregulation in the 1980s has led to increased competition among banks. By mimetic strategic behaviour banks have tried to expand credit volume. Among other factors, a lack of controls, perverse incentives and a changing internal bank culture have led to a severe crisis in Nordic banking systems. Reports a study of how this banking behaviour came about, conducted in a large Swedish bank in jeopardy. Several loan‐granting processes were studied by generating unrestricted verbal material from participant bank officers. By abstracting qualitative aspects (variables) from these materials, different underlying evaluative structures were elicited depending on which persons were being evaluated. Based on the evidence found, forwards suggestions to improve the personality assessments of loan decision officers.
David Deakins and Guhlum Hussain
The risk analysis of small business propositions is characterized byuncertainty and asymmetric information, producing problems of moralhazard and adverse selection for the banks…
Abstract
The risk analysis of small business propositions is characterized by uncertainty and asymmetric information, producing problems of moral hazard and adverse selection for the banks and liquidity constraints for entrepreneurs. Decision making is based on information supplied and the application of different criteria. Concerns the relative importance of different criteria and whether the right criteria are being used to assess small firm ventures by banking institutions, and reports the results of research carried out into the importance of different criteria used in risk assessment by bank officers. Finds a high degree of variability in the approach by different bank officers and a bias towards financial information. The findings have marketing implications. Risk assessment cannot be divorced from the nature of the relationship with the small business customer. Investment in improving techniques of risk assessment increases profitability for the bank and improves marketing opportunities through the development of a long‐term working relationship.
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Arup Bose, Debashis Pal and David Sappington
This paper examines the effects of limiting the number of loans a bank can issue, reflecting a policy recently implemented by the US Federal Reserve.
Abstract
Purpose
This paper examines the effects of limiting the number of loans a bank can issue, reflecting a policy recently implemented by the US Federal Reserve.
Design/methodology/approach
This paper does so in a streamlined model of the banking sector.
Findings
This paper finds that a binding limit on loans can enhance welfare by motivating the bank to reduce the number of socially unproductive loans it makes. However, the limit can sometimes reduce welfare by inducing a reduction in the number of socially productive loans the bank issues, the quality of the bank’s loan portfolio, and/or the accuracy with which the bank screens loan opportunities.
Practical implications
The research demonstrates that limits on the loans a bank issues can have subtle and unintended consequences. Consequently, careful thought is warranted before such limits are imposed.
Originality/value
To our knowledge, the existing literature does not provide guidance on the merits of such loan restrictions.
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Ridzwana Mohd Said, Maliah Sulaiman and Nik Nazli Nik Ahmad
The present study aims to examine the effect of environmental information on fund managers’ investment and bank officers’ lending decisions. Specifically, it looks at the effect…
Abstract
Purpose
The present study aims to examine the effect of environmental information on fund managers’ investment and bank officers’ lending decisions. Specifically, it looks at the effect of qualitative and quantitative forms of environmental information to their decisions.
Design/methodology/approach
Drawing from the normative pressure of institutional theory, the study seeks to identify the extent to which education and professional networks influence investment and lending decisions of fund managers and bank officers. A laboratory experiment was used to collect the data. Twenty-three subjects volunteered in each experimental group, totalling 69 responses from fund managers and bank officers. The subjects were Master of Administration (MBA) students in universities located in Selangor and Kuala Lumpur, Malaysia, to proxy for real practitioners.
Findings
The results reveal that fund managers and bank officers do not incorporate environmental information in their investment and lending decisions. Thus, the normative pressure of institutional theory is supported.
Research limitations/implications
Acknowledging the limitations of data generalisability using student surrogates, future research utilising real practitioners is proposed.
Practical implications
Recognising the importance of environmental information to be incorporated in investment and lending decisions of these major stakeholders, the results suggest universities, professional bodies and companies need to raise awareness concerning the importance and relevance of environmental information in various decisions.
Originality/value
The study offers some preliminary insights into the use of environmental information by fund managers and bank officers in Malaysia.
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Rebekah Austin, Andrew Scott Weinberger and Jon Mohundro
Loan officer decisions are of particular importance to entrepreneurial firms which rely heavily on debt financing as a primary source of capital. The authors investigate whether…
Abstract
Purpose
Loan officer decisions are of particular importance to entrepreneurial firms which rely heavily on debt financing as a primary source of capital. The authors investigate whether social purpose in these firms impact loan officer response to the violation of a debt covenant and whether there is a differential response in decision making between loan officers that work at local banks and those that work at national banks.
Design/methodology/approach
In total 332 loan officers from cities in the South and Midwest United States participated in a quasi-experiment comparing entrepreneurial firms that violated their debt covenants. The loan officers were asked to evaluate loan materials and decide whether they would enforce loan covenant provisions of renegotiated interest rate and by what magnitude. In the treatment group, the loan officer evaluated loan materials of an entrepreneurial firm that included information related to the firms social purpose within their community. In the control group, the evaluation materials did not include this information.
Findings
Consistent with social capital theory, the results suggest that loan officers view community involvement as beneficial to entrepreneurial firm value. Loan officers were less likely to increase interest rates among firms that demonstrated social purpose. Loan officers that decided to increase interest rates punished socially purposeful firms less severely than non-socially purposeful firms. Additionally, loan officers at community banks were less likely to increase interest rates than those at national banks.
Originality/value
While the prior literature examines loan covenant violations, the authors focus on the impact of loan officer decision making in entrepreneurial firms specifically around covenant enforcement. Loan officer decisions have important implications for debt financing but are typically not observable to researchers. Prior work examining the relationship between social purpose and debt financing focuses on large public firms. This study recognizes that social purpose in entrepreneurial firms is less formalized and explicit and thus should be studied separately from large firms.
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Carl‐Christian Trönnberg and Sven Hemlin
The purpose of this paper is to analyze recent findings in the research on bankers' lending decision making, to merge relevant findings in psychology and economics and create a…
Abstract
Purpose
The purpose of this paper is to analyze recent findings in the research on bankers' lending decision making, to merge relevant findings in psychology and economics and create a comprehensive review of the literature.
Design/methodology/approach
The authors used a systematic article search for empirical studies when conducting the research.
Findings
The findings are analyzed on the basis of human decision‐making research. The results of the review are three conclusions about loan officers' decision making: their dependency on bank characteristics, their decision‐making biases, and their deliberate and intuitive reasoning approaches.
Originality/value
The paper's findings are important, both as a summary of the literature on lending decision making and also as a foundation for future research.
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The purpose of this paper is to discuss rise and growth of the “compliance industry” in Belgium by looking at the reasons why this industry became such an important element in the…
Abstract
Purpose
The purpose of this paper is to discuss rise and growth of the “compliance industry” in Belgium by looking at the reasons why this industry became such an important element in the battle against money laundering. The “compliance industry” represents the commercial market that surrounds the battle against money laundering. We aim to map this industry and want to explore how this industry fits in the battle against money laundering.
Design/methodology/approach
This paper represents the final phase of a PhD research, studying the origins of battle against money laundering and the private actors within this battle, the compliance officers. The research starts from a criminological point of view. This paper is based on a survey of compliance officers and interviews with both compliance officers and members of the “compliance industry”.
Findings
The compliance industry is a booming industry on the market on anti‐money laundering. Their services are mainly focused on software packages, advice, training and consultancy. Although this industry has grown as a result of legislation and regulation, there are some problems, mainly related to privacy issues.
Research limitations/implications
For this paper, only a limited amount of corporations within the compliance industry were interviewed, which may result in an incomplete picture of this industry.
Originality/value
Belgium implemented a regulatory framework in 2001, obliging the installment of a compliance function within banks. The value of this research lies in the fact that neither this booming professional group, nor the surrounding market (including the compliance industry) has never been subject of research before.
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This paper provides an overview of some of the key drivers for the compliance officer's contribution to risk management in a complex group situation. The importance of ensuring…
Abstract
This paper provides an overview of some of the key drivers for the compliance officer's contribution to risk management in a complex group situation. The importance of ensuring the compliance officers's proximity to the business is emphasised against the backdrop of the need to manage competing interests and the impact of evolving regulations. The paper identifies major internal and external influences on the role of the compliance officer and argues that there is much synergy between the objectives of the compliance and risk management functions in a banking group.