Loans and human capital: Manager mobility in the financial sector and credit allocation

Abstract

Information production is a central feature of banking. Branch managers are able to directly monitor their borrowers, build relationships with them and acquire soft information, which is not coded in any bank database. In this paper we measure the consequences of management turnover in banks for the allocation of credit in the economy. To do so we combine novel Italian administrative data on the financial sector workforce and match it to credit registry data. First, we show that 5 years after a branch managers leaves her branch, 40% of the client firms leave as well. Second, the new branch of the manager is 3.5 times more likely to establish a credit relationship with a former client of the manager. We argue that the manager brings valuable information in two ways. First, the new branch is 4 times more likely to request information about a former branch client after the manager has joined. Second, conditional on requesting information on a client, a branch is 40% more likely to grant a loan to a former client of a manager who has joined.

Enrico Stivella

PhD student in Economics

Mostly doing research in Economics of Science, Innovation and Human Capital. If not, playing basketball or getting lost in the mountains.