We examine how organizational flexibility influences investment decisions. We develop a novel measure of decentralization based on observed differences in the pricing of loans across subsidiaries within banking groups. We find that decentralized banks earn economically meaningful higher spreads on loans to borrowers with comparable characteristics. We provide evidence that this can be explained by decentralized banks better exploiting lending opportunities arising from high demand and higher urgency. They do so by being more flexible in terms of the industries and countries they lend to, and by reacting more quickly changes in aggregate credit conditions.
Overall, the results suggest that a decentralized organization provides material benefits by enabling more flexible decision-making. We examine how organizational flexibility influences investment decisions. We develop a novel measure of decentralization based on observed differences in the pricing of loans across subsidiaries within banking groups. We find that decentralized banks earn economically meaningful higher spreads on loans to borrowers with comparable characteristics. We provide evidence that this can be explained by decentralized banks better exploiting lending opportunities arising from high demand and higher urgency. They do so by being more flexible in terms of the industries and countries they lend to, and by reacting more quickly changes in aggregate credit conditions.
Overall, the results suggest that a decentralized organization provides material benefits by enabling more flexible decision-making.
Wolf Wagner is a Professor of Finance at the Rotterdam School of Management, Erasmus University, and a fellow of CEPR. Prior to joining Erasmus he has been working at Stockholm School of Economics, Cambridge University and Tilburg University.
His work has been published in the leading finance journals, such as the Journal of Finance, the Journal of Financial Economics, the Review of Financial Studies, the Review of Finance and also Management Science. Wolf Wagner's work focuses on banking and financial institutions. His research concentrates on systemic risk, cross-border banking as well as the influence of political capital in the financial system.
Recent interests include systemic risk in the insurance sector, cooperation among regulators and supervisors as well policies to reduce too-many-to-fail problems.
The seminar will be held in English.
Major information: Andi Duqi (andi.duqi@unibo.it).