Never on Friday! When Soft Information Spoils Loan Quality

Never on Friday! When Soft Information Spoils Loan Quality


Throughout the decades, a solid stream of literature has shown that soft information (which is the definition of private, qualitative, and costly-to-obtain-and-verify information) improves the ability of loan officers to screen borrowers and, consequently, loan quality.
However, Regina Wittemberg-Moerman, Visiting Professor at Bocconi’s Department of Accounting, poses an important question: do constraints and biases impede officers in correctly judging soft information, leading to a lower loan quality? According to the study carried out with Dennis Campbell (Harvard Business School) and Maria Loumioti (The University of Texas at Dallas), soft information leads to a poorer loan quality when loan officers are busier; when they have prior experience in sales; when it is close to the weekend or a holiday;  and when they and the borrower are both males.
Nevertheless, this is only one out of the many innovative results Professor Wittemberg-Moerman has brought to the table of accounting research. As a matter of fact, after a Bachelor of Arts and an MBA at The Hebrew University of Jerusalem both Cum Laude, she flied overseas to pursue a PhD in Accounting, and a second MBA, at The University of Chicago. After previous academic positions at The University of Chicago and University of Pennsylvania, Regina Wittemberg-Moerman is now Professor of Accounting at USC, as well as Senior Editor of Journal of Accounting Research and, undoubtedly, an expert on debt contracting.
Between her Bachelor of Arts and PhD, Professor Wittemberg-Moerman spent a few years working at the Research Unit of Bank of Israel and she points out that, additionally to enjoying the job, she got a first-hand exposure to what today are the topics she masters and investigates with her research questions. For example, in her recent Journal of Accounting and Economics paper, Wittemberg-Moerman and co-authors prove that the introduction of transparent reporting rules increases credit standards harmonization (or decreases the dispersion in credit standards that banks employ), which translates into more favorable lending terms and better loan quality.
From a different point of view, the article “Institutional Dual-Holders and Managers' Earnings Disclosure” in The Accounting Review explains how the presence of institutional investors that invest simultaneously in debt and equity instruments improve earnings forecast disclosure. As a matter of fact, debt holders are known to gain private information about the firm thanks to the lending relationship. To this extent, the company has a need to reduce the information advantage gained by the class of dual-holder investors when originating loans. Indeed, managers, expecting that dual-holder investors (as debt holders) trade on private information, mitigate this advantage with a stronger disclosure response.
Even if it is not simple to define the mission of her field of research, Regina Wittemberg-Moerman states that accounting studies how managers convey information from company to outsiders in the most efficient way. Instead, if she is asked about the future of accounting academia, she encourages young faculty to not choose topics because they are popular, but to find something that gives true excitement to the researcher  - because popularity doesn’t last, but enthusiasm does.
Find out more
Campbell, D., Loumioti, M., & Wittenberg-Moerman, R. (2019). “Making sense of soft information: Interpretation bias and loan quality”Journal of Accounting and Economics68(2-3), DOI:
Kang, J. K., Loumioti, M., & Wittenberg-Moerman, R. (2021). “The harmonization of lending standards within banks through mandated loan-level transparency”Journal of Accounting and Economics72(1), DOI:
Peyravan, L., & Wittenberg-Moerman, R. (2022). “Institutional Dual-Holders and Managers' Earnings Disclosure”The Accounting Review97(3), DOI:

by Giulia Sargiacomo
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