The Effects of Behavioural Biases on the Decisions of Loan Officers to Grant Loans to Small and Medium Sized-Enterprises (Smes)

Chi Collins Penn^1, and Forbeneh Agha Jude¹

¹Department of Accountancy and Finance, Faculty of Economics and Applied Management, Laboratory of Economics and Applied Management, University of Douala, Cameroon

Cite this paper:
Chi Collins Penn and Forbeneh Agha Jude. The Effects of Behavioural Biases on the Decisions of Loan Officers to Grant Loans to Small and Medium Sized-Enterprises (Smes). Journal of Finance and Economics. 2024; 12(4):123-130. doi: 10.12691/jfe-12-4-5

Abstract

The behaviour of loan officers is affected by various cognitive biases mentioned in literature. They are inherent with the loan officer’s decision to grant a loan. We examine four cognitive biases using a sample 47 loan officers of microfinance institutions. we use multiple regressions to examine the effects of four types of cognitive biases on the loan officer’s decision to grant loans. The results show that Prior hypotheses bias, escalating commitment, reasoning by analogy and illusion of control all have significant effects on the decision of the loan officer to grant loans. We suggest that loan officers should consider the possibility of these cognitive biases interfering in their decision making process and awaken their consciences with regards to them when taking the decision to grant a loan.

Keywords:
Cognitive biases loan officer decision making

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