Do Loan Officers Impact Lending Decisions? Evidence from the Corporate Loan Market

We examine and quantify the economic importance of loan officers in the corporate lending process. We construct a comprehensive database that allows us to track the lending terms and loan performance of corporate loans issued by over 7,000 loan officers employed by major U.S. corporate lending departments during the period spanning from 1994 to 2012. We find that loan officers have a substantial impact on both the contract terms (loan spreads, covenants, and maturity) and the performance of corporate loans. The results are robust to controlling for endogeneity concerns related to assortative matching in the labor market. Loan officers' influence on the lending process has not declined much over time, despite technological innovations designed to automate lending. Furthermore, these officers exhibit a greater impact on the lending process in larger, more complex organizations in which information asymmetries are more pronounced. Overall, our study sheds light on the inner workings of corporate banking departments and suggests that a significant portion of lending decisions are delegated to individual loan officers.