The allocation of authority affects the communication of information about clients within banks. We document that in small business lending internal control leads loan officers to propose inflated credit ratings for their clients. Inflated ratings are, however, anticipated and partly reversed by...

We employ a unique dataset of credit assessments for 3,756 small businesses by nine banks using an identical rating model to examine (i) to what extent loan officers use their discretion to smooth credit ratings of their clients, and (ii) to assess whether this use of discretion is driven by...