Finance - Theses

Permanent URI for this collection

Search Results

Now showing 1 - 1 of 1
  • Item
    Thumbnail Image
    Loan contracting and the credit cycle
    Jericevic, Sandra Lynne ( 2002-04)
    The performance of financial institutions is significantly influenced by the actions of loan officers. The process by which lending decisions are made is therefore of critical interest to management, shareholders, and regulators alike. Indeed, the drain on bank capital that has often accompanied credit quality problems in the past has encouraged the search for new approaches towards the management of lending and related activities. This thesis seeks to examine whether existing governance and incentive techniques found in banks are sufficiently comprehensive in guiding loan decision-making. In the context of lending to the corporate sector, the study investigates the endogenous and exogenous influences surrounding the lending role, and assesses the implications for how loan officers are monitored, evaluated, and motivated to act in a financial institution’s best interests. By first developing an expanded model that conceptualizes the loan offer function, and then grounding this framework within a business cycle context, the study demonstrates the potential for governance and reward systems, that are constant through time, to have variable outcomes/effects. Support for this hypothesis is provided based on publicly available financial market information and other material gathered from private sources. A proposal is then advanced for the development of a management information system that identifies changes in credit standards being applied, thereby enabling banks to benchmark and influence loan officer performance in the context of cyclically changing attitudes to risk and the effects on negotiating power.