Does organizational form matter to loan pricing?

We examine whether different organizational forms influence agents’ pricing decisions. We study a secondhand car loan setting consisting of independent agents and in-house agents. We label independent agents more entrepreneurial than in-house agents and argue that entrepreneurship motivates agents to scan the environment for the opportunity to maximize their payoffs. We predict that entrepreneurial agents are more likely to increase prices when presented with the opportunity to do so. We expect this to be the case for opaque loans as they are less subject to competition compared with transparent loans, that experience stronger competition. We find that opaque loans have higher prices than transparent loans for both types of agents. Moreover, the price difference between the two loan types is greater for independent agents than for in-house agents. While prior literature suggests greater agency costs of outsourcing, our study recognizes the potential benefits of outsourcing sales activities to independent agents.