Inhoud
Week 2.................................................................................................................... 2
Bouwens & Kroos (2019).....................................................................................2
Campbell (2012).................................................................................................. 3
Wallace (1997)..................................................................................................... 5
Week 3.................................................................................................................... 6
Campbell et al. (2015)......................................................................................... 6
Gibbs et al. (2004)............................................................................................... 8
Week 4.................................................................................................................... 9
Kroos et al. (2021)............................................................................................... 9
Cohen et al. (2008)............................................................................................10
Kroos et al. (2017)............................................................................................. 11
Week 5.................................................................................................................. 13
Grabner & Moers (2013b)..................................................................................13
Core et al. (1999)...............................................................................................14
Allee et al. (2020).............................................................................................. 15
Week 6.................................................................................................................. 16
Ittner & Oyon (2020).......................................................................................... 16
Kim-Gina (2019)................................................................................................. 17
Schloetzer (2012).............................................................................................. 18
Van der Stede et al (2020).................................................................................19
,Week 2
Bouwens & Kroos (2019)
1. What is the decision that is focal in this study and how is the delegation of
decision rights organized in this setting?
The allocation of decision rights on loan outcomes. Loan officers needs approval
of higher ranked-officers to make loan deals. With the incentive of loan officers to
make loans, in combination with higher-officers to rely on soft information,
creates conditions in which information reported by loan officers may become
optimistically biased. Relative to loans where loan officers have discretion, loans
that require approval from higher hierarchical levels feature: greater discounts on
standard loans and, a greater likelihood of a loan quality downgrade in the period
following the approval. This is a moral hazard problem.
2. What kind of customers are served in this bank and why is this relevant?
Mainly small businesses. This is relevant because this means most of the firms do
not have an obligation to publicize their financial statement and do not have an
obligation to audit their annual report. Hence, their financial report may be of
lower quality.
3. What is the key problem that emerges when decision rights are organized
as they are while serving the kind of customers that they do?
The key problem that emerges is that discount rates on the loans are to high,
because the credit risk is not properly determined (on soft information)n which
leads to downgrade of the loan quality.
4. What are the two components of the riskiness of a loan? In addition, how
do loan rates move (increase or decrease) when the credit risk and total
outstanding debt increase? Does this make sense to you?
The amount of the loan and the credit risk. The credit risk is influenced by
collaterals and financial stability. If the credit risk and total outstanding debt
increase, loan rates increases. This makes sense, since higher risk is
compensated with higher rates.
5. What is the main takeaway from Table 5? Is this consistent with the key
problem that you discussed at point 3.
Table 5 shows that higher-level decision making is associated with greater
discounts on standard loan rates. Loan officers make use of soft information to
communicate optimistically about risk-return characteristics of the loans request,
which in turn facilitates lower loan rates.
Loans approved by the credit committee are associated with downgrades in loan
quality codes.
These findings are consistent with the key problem mentioned at point 3.
6. What is the main takeaway from Table 6? Is this consistent with the key
problem that you discussed at point 3.
The results suggest that higher level decision making only leads to discounts on
standard loan rates for firms that do not have audited financial statements. This is
consistent with the intuition that for audited firms, lending decisions are more
based on hard, verifiable
information which limits the role of loan officers in presenting their soft
information with an optimistic bias.
This is consistent with point 3, since the misalignment of discounts rates, is partly
created by the mis presentment of soft information.
, Campbell (2012)
1. Explain the transition from centralized towards decentralized decision
making at this credit union? Describe the centralized and decentralized
decision making system.
Where before risk managers had to approve certain loans and guidelines where
strictly used (centralized) the decision making authority was decentralized, such
that loans officers could make decisions on their own and where trusted to do so.
The could deviate from guidelines if need be.
A credit union is a smaller bank valuing customer satisfaction and service more
than corporate banks. This makes a decentralized decision making system more
appropriate. It may enhances customer satisfaction.
2. Describe the new strategy and did it fit with the new decentralized
decision making system?
The new system tries to select employees with interests which align with the
organization. Such as selecting employees with empathy to increase member
satisfaction. This suits the decentralized decision making system.
3. Do you believe that this new strategy makes sense given that the
organization is a credit union?
See above.
4. What are the implications of this new strategy for the incentive and control
system? Do you believe that the new strategy is easy to grasp by means of
an incentive and control system that is primarily based on performance
measures and rewards?
The implications leads to less control. This makes it hard to grasp performance by
means of an incentive and control system that is primarily based on performance
measures and rewards.
5. What will be the main component of the new incentive and control system
that matches the new strategy (use the Merchant & VD Stede framework
as your frame of reference)?
Personnel and cultural controls. The culture needs to insure the personnel makes
the right decisions.
6. What are the two outcome variables that you would be especially
interested in to examine how successful the new decision making system
and the new incentive and control system were?
Customer satisfaction
Credit losses and loan downgrades.
7. What is the main takeaway from Table 5? Is the new systems successful?
Overall, the results in this section provide evidence that the use of decision-
making authority is significantly higher for employees selected via channels that
are likely to sort on the alignment of their preferences with organizational
Week 2.................................................................................................................... 2
Bouwens & Kroos (2019).....................................................................................2
Campbell (2012).................................................................................................. 3
Wallace (1997)..................................................................................................... 5
Week 3.................................................................................................................... 6
Campbell et al. (2015)......................................................................................... 6
Gibbs et al. (2004)............................................................................................... 8
Week 4.................................................................................................................... 9
Kroos et al. (2021)............................................................................................... 9
Cohen et al. (2008)............................................................................................10
Kroos et al. (2017)............................................................................................. 11
Week 5.................................................................................................................. 13
Grabner & Moers (2013b)..................................................................................13
Core et al. (1999)...............................................................................................14
Allee et al. (2020).............................................................................................. 15
Week 6.................................................................................................................. 16
Ittner & Oyon (2020).......................................................................................... 16
Kim-Gina (2019)................................................................................................. 17
Schloetzer (2012).............................................................................................. 18
Van der Stede et al (2020).................................................................................19
,Week 2
Bouwens & Kroos (2019)
1. What is the decision that is focal in this study and how is the delegation of
decision rights organized in this setting?
The allocation of decision rights on loan outcomes. Loan officers needs approval
of higher ranked-officers to make loan deals. With the incentive of loan officers to
make loans, in combination with higher-officers to rely on soft information,
creates conditions in which information reported by loan officers may become
optimistically biased. Relative to loans where loan officers have discretion, loans
that require approval from higher hierarchical levels feature: greater discounts on
standard loans and, a greater likelihood of a loan quality downgrade in the period
following the approval. This is a moral hazard problem.
2. What kind of customers are served in this bank and why is this relevant?
Mainly small businesses. This is relevant because this means most of the firms do
not have an obligation to publicize their financial statement and do not have an
obligation to audit their annual report. Hence, their financial report may be of
lower quality.
3. What is the key problem that emerges when decision rights are organized
as they are while serving the kind of customers that they do?
The key problem that emerges is that discount rates on the loans are to high,
because the credit risk is not properly determined (on soft information)n which
leads to downgrade of the loan quality.
4. What are the two components of the riskiness of a loan? In addition, how
do loan rates move (increase or decrease) when the credit risk and total
outstanding debt increase? Does this make sense to you?
The amount of the loan and the credit risk. The credit risk is influenced by
collaterals and financial stability. If the credit risk and total outstanding debt
increase, loan rates increases. This makes sense, since higher risk is
compensated with higher rates.
5. What is the main takeaway from Table 5? Is this consistent with the key
problem that you discussed at point 3.
Table 5 shows that higher-level decision making is associated with greater
discounts on standard loan rates. Loan officers make use of soft information to
communicate optimistically about risk-return characteristics of the loans request,
which in turn facilitates lower loan rates.
Loans approved by the credit committee are associated with downgrades in loan
quality codes.
These findings are consistent with the key problem mentioned at point 3.
6. What is the main takeaway from Table 6? Is this consistent with the key
problem that you discussed at point 3.
The results suggest that higher level decision making only leads to discounts on
standard loan rates for firms that do not have audited financial statements. This is
consistent with the intuition that for audited firms, lending decisions are more
based on hard, verifiable
information which limits the role of loan officers in presenting their soft
information with an optimistic bias.
This is consistent with point 3, since the misalignment of discounts rates, is partly
created by the mis presentment of soft information.
, Campbell (2012)
1. Explain the transition from centralized towards decentralized decision
making at this credit union? Describe the centralized and decentralized
decision making system.
Where before risk managers had to approve certain loans and guidelines where
strictly used (centralized) the decision making authority was decentralized, such
that loans officers could make decisions on their own and where trusted to do so.
The could deviate from guidelines if need be.
A credit union is a smaller bank valuing customer satisfaction and service more
than corporate banks. This makes a decentralized decision making system more
appropriate. It may enhances customer satisfaction.
2. Describe the new strategy and did it fit with the new decentralized
decision making system?
The new system tries to select employees with interests which align with the
organization. Such as selecting employees with empathy to increase member
satisfaction. This suits the decentralized decision making system.
3. Do you believe that this new strategy makes sense given that the
organization is a credit union?
See above.
4. What are the implications of this new strategy for the incentive and control
system? Do you believe that the new strategy is easy to grasp by means of
an incentive and control system that is primarily based on performance
measures and rewards?
The implications leads to less control. This makes it hard to grasp performance by
means of an incentive and control system that is primarily based on performance
measures and rewards.
5. What will be the main component of the new incentive and control system
that matches the new strategy (use the Merchant & VD Stede framework
as your frame of reference)?
Personnel and cultural controls. The culture needs to insure the personnel makes
the right decisions.
6. What are the two outcome variables that you would be especially
interested in to examine how successful the new decision making system
and the new incentive and control system were?
Customer satisfaction
Credit losses and loan downgrades.
7. What is the main takeaway from Table 5? Is the new systems successful?
Overall, the results in this section provide evidence that the use of decision-
making authority is significantly higher for employees selected via channels that
are likely to sort on the alignment of their preferences with organizational
