How Lending Officers Construe Assessments of Small and Medium-Sized Enterprise Loan Applications: A Repertory Grid Study

Repertory grid technique and principal component analysis were used to map and analyze how 75 lending officers (LOs) viewed their assessments of small and medium-sized enterprises’ loan applications in one bank and region. A standard set of elements and constructs, derived during pre- and pilot studies, was used. Analysis of individual grids demonstrated that the principal components indicated the existence of similarities in LOs’ construing at an aggregated level. Analysis of the mean grid of all respondents indicated that the LOs were encouraged by the bank's lending strategy and supporting system(s) to perform “procedural lending” with a focus on hard and future-oriented information. At the same time, the LOs deemphasized relationship lending, in particular, personal relationships.

[1]  D. Deakins,et al.  Financial Information, The Banker And The Small Business: A Comment , 1994 .

[2]  B. Uzzi,et al.  Embeddedness in the Making of Financial Capital: How Social Relations and Networks Benefit Firms Seeking Financing , 1999, The New Economic Sociology.

[3]  C. Ennew,et al.  The Relationship Between U.K. Banks and Their Small Business Customers , 1997 .

[4]  Roger Kumra,et al.  Assessing a knowledge-based approach to commercial loan underwriting , 2006, Expert Syst. Appl..

[5]  D. Sperlinger.  Aspects of stability in the repertory grid , 1976 .

[6]  Gregory F. Udell.  What's in a relationship? The case of commercial lending , 2008 .

[7]  Jean C. Bedard,et al.  The Effects of Task Size and Similarity on the Decision Behavior of Bank Loan Officers , 1985 .

[8]  A. D. Jankowicz,et al.  Intuition in venture capital decisions: An exploratory study using a new technique , 1990 .

[9]  Raanan Lipshitz,et al.  Intuition and Emotion in Bank Loan Officers' Credit Decisions , 2007 .

[10]  Atif R. Mian,et al.  Estimating the Effect of Hierarchies on Information Use , 2009 .

[11]  M. Fletcher.  Decision making by Scottish bank managers , 1995 .

[12]  Richard C. Bell.  ON TESTING THE COMMONALITY OF CONSTRUCTS IN SUPPLIED GRIDS , 2000 .

[13]  Allen N. Berger,et al.  A more complete conceptual framework for SME finance , 2006 .

[14]  A. D. Jankowicz,et al.  Intuition in Small Business Lending Decisions , 1987 .

[15]  SMEs' access to bank finance in Scotland: an analysis of bank manager decision making , 2010 .

[16]  H. Degryse,et al.  RELATIONSHIP LENDING WITHIN A BANK-BASED SYSTEM: EVIDENCE FROM EUROPEAN SMALL BUSINESS DATA , 2000 .

[17]  G. Kelly,et al.  The psychology of personal constructs. Vol. 1. A theory of personality. Vol. 2. Clinical diagnosis and psychotherapy. , 1955 .

[18]  Philip Bromiley,et al.  DECISION MAKING IN AN ORGANIZATIONAL SETTING: COGNITIVE AND ORGANIZATIONAL INFLUENCES ON RISK ASSESSMENT IN COMMERCIAL LENDING , 1997 .

[19]  Barbara Senior,et al.  Team performance: using repertory grid technique to gain a view from the inside , 1996 .

[20]  J. Young,et al.  The entrepreneurial search for capital: a behavioural science perspective * , 1991 .

[21]  Robert A. Neimeyer,et al.  CONTENT ANALYSIS OF PERSONAL CONSTRUCTS , 2002 .

[22]  S. Carter,et al.  The Happy Story of Small Business Financing , 2007 .

[23]  Arnoud Boot.  Relationship Banking: What Do We Know? , 2000 .

[24]  Holly Smith,et al.  THE RELIABILITY AND VALIDITY OF STRUCTURAL MEASURES DERIVED FROM REPERTORY GRIDS , 2000 .

[25]  E. Murray.  THEORY OF PERSONALITY , 1953 .

[26]  Allen N. Berger,et al.  Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure , 2001 .

[27]  A. Stewart,et al.  Business applications of repertory grid , 1981 .

[28]  S. Carter,et al.  Bank Loan Officers' Perceptions of Business Owners: The Role of Gender , 2007 .

[29]  M. Dietsch,et al.  The credit risk in SME loans portfolios: Modeling issues, pricing, and capital requirements , 2002 .

[30]  D. Deakins,et al.  Risk Assessment with Asymmetric Information , 1994 .

[31]  Allen N. Berger,et al.  Relationship Lending and Lines of Credit in Small Firm Finance , 1994 .

[32]  L. Goldberg,et al.  Relationship Lending: A Survey of the Literature , 2004 .

[33]  Robert P. Wright,et al.  Rigor and Relevance Using Repertory Grid Technique in Strategy Research , 2006 .

[34]  Michel Ferrary.  Trust and social capital in the regulation of lending activities , 2003 .

[35]  Robert P. Wright,et al.  Mapping cognitions to better understand attitudinal and behavioral responses in appraisal research , 2004 .

[36]  Peter Öhman,et al.  Swedish auditors' view of auditing: Doing things right versus doing the right things , 2006 .

[37]  G. Wahlström.  Risk management versus operational action: Basel II in a Swedish context , 2009 .

[38]  Richard Bell,et al.  A manual for repertory grid technique , 1977 .

[39]  P. Honey,et al.  The repertory grid in action , 1979 .

[40]  M. Hughes,et al.  Financial Information, The Banker And The Small Business , 1993 .

[41]  R. Bell.  THE JOINT REPRESENTATION OF CONSTRUCTS AND ELEMENTS IN REPERTORY GRID DATA BY COMPONENT ANALYSIS: SLATER'S INGRID IS NOT THE BEST SOLUTION , 2004 .

[42]  J. Barney.  Firm Resources and Sustained Competitive Advantage , 1991 .

[43]  Eleanor O'Higgins.  Non-Executive Directors on Boards in Ireland: Co-Option, Characteristics and Contributions , 2002 .

[44]  M. Fletcher,et al.  Banks' risk assessment of Swedish SMEs , 2008 .

[45]  Robert P. Wright,et al.  COMPARING APPLES WITH APPLES: THE IMPORTANCE OF ELEMENT WORDING IN GRID APPLICATIONS , 2002 .

[46]  D. Scharfstein,et al.  Bank Lending During the Financial Crisis of 2008 , 2009 .

[47]  Patrick Behr,et al.  Credit Risk Assessment and Relationship Lending: An Empirical Analysis of German Small and Medium‐Sized Enterprises** , 2007 .

[48]  Aidan Berry,et al.  Overseas bankers in the UK and their use of information for making lending decisions: Changes from 1985 , 2006 .

[49]  O. Ergungor.  The profitability of bank-borrower relationships , 2005 .

[50]  Mark Easterby-Smith,et al.  The Design, Analysis and Interpretation of Repertory Grids , 1980, Int. J. Man Mach. Stud..