The Decision-Making Mechanism of Regional Financial Institutions and the Utilization of Soft Information

In this paper, we document a practice in the processes of loan screenings and term settings by regional financial institutions and the extent of the use of qualitative information in these processes based upon the data collected by our originally -designed questionnaire survey on financial institutions. With this dataset, we also conduct a statistical examination of the hypothesis presented by the existing theory, which predicts the positive correlation between the extent of the delegation of loan decision-making authorities to branches and the extent of the use of soft information. From the statistical analysis, we find a positive correlation, which is supportive of the hypothesis although the statistical significance is not so high. There is also a positive and statistically significant correlation between the asset size of financial institutions and the extent of the use of qualitative information. Our research shows that the results of the preceding empirical studies, which were designed upon the intuitive assumption that financial institutions with larger total assets have a more centralized decision-making system and their extent of the use of soft information is lower, should be interpreted with caution.