Bankers on the Move: Relationship Capital in Credit Markets

Abstract

Economic theory emphasizes the role of human capital in financial intermediation: bank managers and loan officers accumulate information and build personal relationships that shape credit allocation. Using Italian administrative data, we directly measure these relationships by linking bank managers to their portfolios of client firms and tracking their movements across financial institutions. We show that when a manager switches employers, firms in her prior portfolio become 3.5 times more likely to establish a lending relationship with her new bank. This portability arises because managers lower firms’ switching costs rather than generating adverse selection. We observe a threefold increase in loan applications to the new bank from prior clients but only a modest rise in approval rates. Firms that follow managers pay 0.9 percentage points lower interest rates than on their prior loans but similar rates to other new borrowers at the same bank. Managers transfer valuable information across banks: relationship-originated loans are 4 percentage points less likely to default than other new loans. To isolate the causal role of manager mobility, we exploit variation in the timing of job switches and control for credit demand and supply shocks. In a separate analysis, we also leverage exogenous shocks to mobility induced by branch closures.

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.