Rodrigo Canales

A Darker Side to Decentralized Banks: Market Power and Credit Rationing in SME Lending

We use loan-level data to study how the organizational structure of banks impacts small business lending. We find that decentralized banks—where branch managers have greater autonomy over lending decisions—give larger loans to small firms and those with “soft information.” However, decentralized banks are also more responsive to their own competitive environment. They are more likely to expand credit when faced with competition but also cherry pick customers and restrict credit when they have market power. This “darker side” to decentralized banks in concentrated markets highlights that the level of local banking competition is key to determining which organizational structure provides better lending terms for small businesses.

Weaving Straw into Gold: Managing Organizational Tensions Between Standardization and Flexibility in Microfinance

This article explores how organizations balance the pressures to pursue efficiency through standardization with the need to remain responsive to local needs. The study combines rich ethnography with detailed loan data to show that both standardization and flexibility through relational ties provide substantial organizational benefits but also carry significant costs; thus, no strategy is inherently superior, and their coexistence generates the best results. Such coexistence, however, creates contradictions that must be managed. Here, I use microfinance as a strategic setting and gain analytic leverage from the random assignment across branches of loan officers who exhibit significant heterogeneity in rule enforcement styles: some enforce rules strictly, whereas others frequently bend them to respond to client needs. I find that loan officers with relational styles exercise discretion productively to enhance organizational performance. Yet their effectiveness is contingent on the presence of rule-enforcing peers, as evidenced by the significant underperformance of branches with a high concentration of officers of either type. In contrast, branches that contain discretionary diversity, or a balance between enforcement styles, perform best. This is not due to diversity per se, but because loan officers process decisions in local credit committees. Committees that contain discretionary diversity generate a productive tension that induces participants to justify decisions along broader organizational goals, thus maintaining a productive balance between standardization and flexibility. Implications for organizational theory and practice are discussed.

From Ideals to Institutions: Institutional Entrepreneurship in Mexican Small Business Finance

This paper analyzes the creation of the market for small business credit in Mexico, which presents a rare opportunity to explore the mechanisms of institutional entrepreneurship. The paper analyzes successful and unsuccessful attempts to activate small business lending to determine the organizational, structural, and personal aspects that allowed certain groups of individuals and not others to succeed. The paper proposes that, contrary to conventional thought, institutional change is not rare because institutional entrepreneurs are scarce. In fact, they are quite prevalent. What keeps most institutional entrepreneurs hidden from view is preference falsification, or the distinction that institutions function through the coordination of common beliefs, while private beliefs can diverge wildly. A central challenge of institutional entrepreneurship, therefore, is the transformation of the private beliefs of a few into common beliefs that can support new institutions. The paper argues that institutional entrepreneurship, while common, seldom succeeds because it entails a sequence of relatively unlikely events, including the recognition of an opportunity, the execution of organizational experiments, and the creation of public knowledge. Each stage of institutional entrepreneurship requires a combination of personal and structural qualities that are rarely found in a single individual, which explains why so few of them succeed.

From Ideals to Institutions: Institutional Entrepreneurship and the Growth of Mexican Small Business Finance

This in-depth, comparative case study of the creation of the small and medium enterprise credit market in Mexico explores the work of actors to craft new organizational practices, as well as the symbols that sustain institutionalization efforts. The study demonstrates that, to craft new institutional practices, individual actors engage in two distinct layers of institutional work. One entails purposefully visible, staged, scripted, and carefully documented work to suspend existing institutions and allow for experimentation as well as to legitimize new practices. The second entails invisible, undocumented work to recruit allies, find resources, experiment with new practices, coordinate strategies of action, and build political toolkits. While visible work—which is the focus of most research on institutional change—was determinant at every stage of the change process because of its symbolic effects, actors spent most of their time and energy on invisible work, which they referred to as “the real work.” The ...

A Matter of (Relational) Style: Loan Officer Consistency and Exchange Continuity in Microfinance

Social scientists have long considered what mechanisms underlie repeated exchange. Three mechanisms have garnered the majority of this attention: formal contracts, relational contracts, and relationally embedded social ties. Although each mechanism has its virtues, all three exhibit a common limitation: an inability to fully explain the continuation and stability of intertemporal exchange between individuals and organizations in the face of change. Drawing on extensive quantitative data on approximately 450,000 microfinance loans made by a microfinance institution in Mexico from 2004 to 2008 that include random assignment of loan officers, this research proposes the concept of ”relational styles” to help explain how repeated exchange is possible in the face of personnel change. We define relational styles as systematically reoccurring patterns of interaction employed by social actors within and across exchange relationships—in this paper, between microfinance clients and loan officers. We show that relational styles that are consistent facilitate a clear understanding of expectations and thus exchange. We also demonstrate that consistency in the relational styles followed by successive loan officers mitigates the negative impact of a broken loan officer–client tie. This paper thus proposes and empirically tests a social mechanism based on relational styles that often accompanies relational embeddedness, but which may also serve as a partial substitute for it. This paper was accepted by Jesper Sorensen, organizations.

Ari Adut: On Scandal: Moral Disturbances in Society, Politics, and ArtAdutAri. On Scandal: Moral Disturbances in Society, Politics, and Art. New York: Cambridge University Press, 2009. 372 pp.

518/ASQ, September 2010 To most readers, it will come as no surprise that scandal as a social phenomenon is ubiquitous and has deep transformative power. Hardly a day goes by without a major national or international scandal playing itself out in the media. Most of these scandals fade away as new scandals take their place, but some can generate structural changes of unanticipated magnitude and consequences. Most of them affect the lives of those directly involved, but some have an impact far beyond that. U.S. foreign policy, as well as the strategy of U.S. military forces, for example, will surely look much different after the Abu Ghraib scandal in ways that would have been impossible for any of the participants to anticipate.

22.99, paper.

In many firms, incentivized salespeople with private information about their customers are responsible for customer relationship management (CRM). Private information can help the firm by increasing sales efficiency, but it can also hurt the firm if salespeople use it to maximize own compensation at the expense of the firm. Specifically, we consider two negative outcomes due to private information — ex-ante customer adverse selection at the time of acquisition and ex-post customer moral hazard after acquisition. This paper investigates potential positive and negative responses of a salesforce to managerial levers — multidimensional incentives for acquisition and retention performance and job transfers that affect the level of private information. Salespeople are responsible for managing customer relationships and compensated through multidimensional performance incentives for customer acquisition and maintenance at many firms. This paper investigates how a salesperson’s private information on customers affect their response to multiple dimensions of incentives. Using unique matched panel data that links individual salesperson performance metrics with customer level loans and repayments from a microfinance bank, we find that sales people indeed possess private information that is not available to the firm. Salespeople use the private information to engage in adverse selection of customers in response to acquisition incentives. Customer maintenance incentives serve a dual purpose; they not only reduce loan defaults, but also moderate adverse selection in customer acquisition. Transfers that eliminate private information reduces the adverse selection effects of acquisition incentives, but increase loan defaults — customer moral hazard. Despite the potential negative adverse selection effects due to private information, the effort increasing effect of each of the three dimensions of sales management we investigate — acquisition incentive, maintenance incentive and transfers all have a net positive effect on firm value. Methodologically, the paper introduces an identification strategy to separate customer adverse selection and customer moral hazard (loan repayment), by leveraging the multidimensional incentives of an intermediary (salesperson) responsible for both customer selection and repayment with private information about customers.

Multidimensional Sales Incentives in CRM Settings: Customer Adverse Selection and Moral Hazard

This article explores how microfinance institutions (MFIs) resolve tensions between the creation and the enactment of organizational rules. The study complements rich ethnography with detailed loan data to show that some loan officers frequently bend rules to better address client needs, while others enforce the rules strictly. Differences in enforcement styles are analyzed to explain the structural conditions that generate them. The article shows that officers exercise discretion productively to help clients and improve company policies. Yet, their effectiveness is contingent on being held in check by rule enforcing peers. This is because the same conditions that generate officer discretion also create a fuzzy professional identity. Thus, branch-level interactions between similar loan officers result in “localist” identities decoupled from the firm; while branches with diverse enforcement styles generate professional identities that are integrated with the firm, create amplified learning, and increase the legitimacy of discretion in rule enactment.