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An Analysis of the Information Asymmetry between Bank Headquarters and Branch Offices: Using the Mortgage Loan Approval Data

  • Korea Real Estate Review
  • 2010, 20(1), pp.163-179
  • Publisher : korea real estate research institute
  • Research Area : Social Science > Law > Law of Special Parts > Law of Real Estate

Seungwoo Shin 1,  Seon-Jong Yoo 1

1건국대학교

Accredited

ABSTRACT

This study investigates the information asymmetry between bank headquarters and branch offices. It seems reasonable to suppose that, when a bank’s headquarters, through its communications with its branch offices, defines the procedures, formulas and principles on which to base residential mortgage lending decisions with crystal clarity, there should be no cases in which branch-based lending decisions are disapproved by headquarters. We use data collected during the year 2009 at a branch office of one of Korea’s largest banks. We use discriminant analysis and binomial logistic regression analysis to measure the level of miscommunications between bank headquarters and a branch office and explain what causes such inefficiencies in communication. This study finds that the disapproval rate is about 4.29%, which is considerably larger. We conjecture that this results from differing interpretations of default risk, based on our measurement of credit variables such as DTI2 and other debt obligation. We suggest that such loan decision reversals occur in part because a branch officer has qualitative information about the credit quality of mortgage applicants that headquarters lacks.

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