Decision making in an organizational setting: cognitive and organizational influences on risk assessment in commercial lending

Article Abstract:

Although management researchers would like to understand management decisions related to risk, almost all previous research on risk has used either experiments or aggregate corporate data rather than data from actual business decisions. In this initial research on risk in actual business decisions, we examined the risk assessments bankers assigned to commercial borrowers. We tested hypotheses derived from research in strategy, finance, and behavioral decision theory in order to assess the influence of both organizational and cognitive factors on the likelihood of risk assessment errors. Although we found that both organizational and cognitive factors influenced risky decision making, when both were present, organizational factors appeared to overwhelm cognitive biases. (Reprinted by permission of the publisher.)

Commercial Banks, Commercial Banking, Business Financing, Commercial loans

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Risk and return in organizational decision making

Article Abstract:

Research was conducted to examine the relationship between expected return and managerial assessments of risk. The risk-return relations in a large set of borrower-bank interactions within a single commercial bank were analyzed based on its annual review of each borrower. Results demonstrate that risk-return relations depended on the measurements used. Evidence of conservatism in managers' adjustment to new information with regards to the riskiness of decisions was also found.

Return on investment, Rate of return

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