HOW DOES NEGATIVE SOURCE CREDIBILITY AFFECT COMMERCIAL LENDERS’ DECISIONS?

Data were collected from loan officers using a computerized process-tracing program to help shed some light on how source credibility impacts the judgments made by loan officers. Loan officers did not structure loans more restrictively regardless of whether they were in the positive or negative character condition or whether they approved or denied the loan. Negative source credibility affected decision process effort but did not produce the tradeoff between loan approval and loan structure that is suggested in the literature. Although significantly more (fewer) loans were denied when character information was negative (positive), a majority of loan officers in the negative character condition approved the loan. While most loan officers were aware of negative source credibility, they did not react by denying loans or adjusting loan structure.