Title: Soft Information, Information Transmission and Bank’s Lending Decisions: An Empirical Study of the Evidence from Rural Commercial Bank A

Authors: Shaofei Wang (Shanghai University of Finance and Economics), Bo Zhou (Shanghai University of Finance and Economics), Xiaoliang Lv (Shanghai University of International Business and Economics)

Abstract: In this paper, we examine the effect of soft information on bank’s lending decisions empirically, employing the loan data and recording materials of loan review meetings from the Micro-credit Center of Rural Commercial Bank A. We find that positive soft information will reduce loan interest rates and increase loan approval amount, while negative soft information will increase loan interest rates but has no significant effect on loan approval amount. The attention and personal characteristics of the loan approval committee members can affect the effectiveness of soft information transmission. The role of soft information in lending decisions will be weakened when the committee members are distracted and when at least one member is female. While being more experienced, committee members are more sensitive to negative soft information, and the effect of soft information will be enhanced when the committee members and the customer managers are of the identical gender. Further research shows that soft information of different dimensions has different effects on bank’s lending decisions, and soft information plays a greater role when the borrowers’ hard information is insufficient. Our research opens the black box of bank’s lending decision-making, reveals the functioning mechanism of soft information, and provides implications for alleviating financial constraints for small and micro-enterprises and promoting the development of inclusive finance.