There is more to a Bank than its Size: Bank Specialization and Financial Information Collection

• In Event: Debt Contracting I

Abstract

Along with size, specialization features prominently in models of how bank characteristics interact with bank information collection practices. However, empirical evidence on the role of specialization is limited because of difficulty in measuring banks’ loan exposures. Using a novel data source of bank level exposures, we find banks collect audited financial statements significantly more frequently from firms in industries in which the bank has relatively less exposure or that are new exposures for the bank. We show that our results are complementary to, but distinct from, the relation between bank size and verified financial report collection. We also exploit variation in the impact of the housing boom on construction lending to confirm these results. Our results are consistent with exposure concentration revealing a bank’s specialization and with specialization substantively shaping the bank’s information collection practices.

Authors

• Philip Berger, University of Chicago

• Michael Minnis, University of Chicago

• Andrew Gordon Sutherland, MIT