Does organizational form matter to loan pricing?

44 Pages Posted: 11 Dec 2019 Last revised: 10 Apr 2021

See all articles by Chung-Yu Hung

Chung-Yu Hung

University of Melbourne, Department of Accounting

Margaret A. Abernethy

University of Melbourne, Department of Accounting

Christian Hofmann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management)

Laurence van Lent

Frankfurt School of Finance and Management

Date Written: July 21, 2020

Abstract

We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We label independent agents more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as they are less subject to competition compared with transparent loans, that experience stronger competition. We find that opaque loans have higher prices than transparent loans for both types of agents. Moreover, the price difference between the two loan types is greater for independent agents than for in-house agents. While prior literature suggests greater agency costs of outsourcing, our study recognizes the potential benefits of outsourcing sales activities to independent agents.

Keywords: organizational form; franchise; outsourcing; loans; soft information; decision-making; pricing decisions.

JEL Classification: D82; L22; M49

Suggested Citation

Hung, Chung-Yu and Abernethy, Margaret A. and Hofmann, Christian and van Lent, Laurence, Does organizational form matter to loan pricing? (July 21, 2020). Available at SSRN: https://ssrn.com/abstract=3492407 or http://dx.doi.org/10.2139/ssrn.3492407

Chung-Yu Hung (Contact Author)

University of Melbourne, Department of Accounting ( email )

198 Berkeley Street
Melbourne, Victoria 3053
Australia

Margaret A. Abernethy

University of Melbourne, Department of Accounting ( email )

Victoria
Melbourne, Victoria 3010 3010
Australia
+61 3 8344 7655 (Phone)
+61 3 9349 2397 (Fax)

Christian Hofmann

Ludwig Maximilian University of Munich (LMU) - Faculty of Business Administration (Munich School of Management) ( email )

Kaulbachstr. 45
Munich, DE 80539
Germany

Laurence Van Lent

Frankfurt School of Finance and Management ( email )

Adickesallee 32-34
Frankfurt am Main, 60322
Germany

HOME PAGE: http://www.laurencevanlent.org

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