Publications
Publications
- 2025
Unwinding Loan Prospecting Pressure Through Renegotiation: The Role of Loan Officer Changes in Debt Contracting
By: Jung Koo Kang, Regina Wittenberg Moerman and Jessie Cheong
Abstract
We examine the impact of loan officer changes on debt contract design. Loan officers play a critical role in initiating and maintaining lending relationships but also face pressure to originate more loans, incentivizing them to offer loan terms more favorable than warranted by borrowers’ creditworthiness. Because a new loan officer is not subject to this loan prospecting pressure, we predict that she reverses the favorable discretion granted at loan origination. Using a loan renegotiation setting, we find that borrowers are more likely to obtain unfavorable renegotiation outcomes when a new loan officer conducts the renegotiation. This effect is more pronounced when loan prospecting pressure is greater at loan origination—when the loan officer is less experienced, when the lead arranger is a non-relationship lender or faces lower income growth, and when credit market competition is higher. We provide novel insights into how loan officer changes restore contracting efficiency through renegotiations.
Keywords
Citation
Kang, Jung Koo, Regina Wittenberg Moerman, and Jessie Cheong. "Unwinding Loan Prospecting Pressure Through Renegotiation: The Role of Loan Officer Changes in Debt Contracting." Working Paper, March 2025.