Three Essays On The Effect Of Bank Monitoring On Borrower Decisions Evidence From India

Abstract

This dissertation consists of three essays which are unified by the common theme of bank monitoring. The first essay provides novel evidence for the role of bank monitoring in the sustenance and growth of microenterprises. Specifically, the study examines the effect of monitoring by a Small Finance Bank (SFB) on the repayment behavior of its women micropreneur borrowers. The study also provides empirical evidence for the entrepreneurship development role of bank monitoring by documenting its effect on entrepreneurial self-efficacy (ESE) of women micropreneurs. The study uses unique primary data on repayment behavior and monitoring of 749 women micropreneur borrowers of a SFB in India. The empirical results reveal that continuous monitoring by the bank, at the organizational level and the loan officer level, significantly reduces the delinquency of women micropreneurs. Another notable finding is that, monitoring by the bank positively influences the ESE of women micropreneurs which in turn augments the ability of monitoring to reduce delinquency. The findings imply that policymakers and managers of SFBs must emphasize on maintaining relationships with the borrowers and instill positive behavioral changes in the course of monitoring borrowers to improve asset quality. The second essay examines the effect of bank appointed director s monitoring on investment efficiency of Indian listed firms. Building on the bank monitoring literature, we contend that bank appointed director s monitoring reduces agency issues and information asymmetry, thereby alleviating overinvestment and underinvestment tendency of firms. Unlike previous research, that use investment cash flow sensitivity as a proxy for investment efficiency, this study for the first-time measures over and underinvestment as deviations of firm s investment from the expected investment and reports its relationship with bank monitoring.