This paper analyzes how different organizational forms—decentralized versus hierarchical—can affect the ability to generate information about investment projects and allocate capital efficiently. It argues that decentralized firms, with small, single-manager structures, are more effective when information about individual projects is "soft," meaning it cannot be easily verified. In contrast, hierarchical firms with multiple layers of management are more efficient when information can be "hardened" and passed along within the hierarchy. The paper applies this theory to the banking industry, where consolidation has led to reduced lending to small businesses. It suggests that this outcome is consistent with the theory, as small-business lending relies heavily on soft information. The paper contrasts two organizational forms: decentralization, where small, single-manager firms make decisions, and hierarchy, where large firms with multiple layers of management evaluate many projects. It argues that decentralization is more efficient when information is soft, as it provides stronger incentives for line managers to conduct research. In contrast, hierarchy is more efficient when information is hard, as it allows for better capital allocation across divisions. The paper also discusses the implications of soft information for organizational structure, suggesting that flatter organizations are more efficient when information is soft. It argues that hierarchies tend to be inefficient due to excessive bureaucracy, as line managers may focus too much on documentation rather than producing soft information. The paper concludes that the choice between decentralization and hierarchy depends on the nature of the information involved. Decentralization is more effective when information is soft, while hierarchy is more effective when information is hard. The paper also notes that the results are robust to various factors, including the presence of synergies between projects.This paper analyzes how different organizational forms—decentralized versus hierarchical—can affect the ability to generate information about investment projects and allocate capital efficiently. It argues that decentralized firms, with small, single-manager structures, are more effective when information about individual projects is "soft," meaning it cannot be easily verified. In contrast, hierarchical firms with multiple layers of management are more efficient when information can be "hardened" and passed along within the hierarchy. The paper applies this theory to the banking industry, where consolidation has led to reduced lending to small businesses. It suggests that this outcome is consistent with the theory, as small-business lending relies heavily on soft information. The paper contrasts two organizational forms: decentralization, where small, single-manager firms make decisions, and hierarchy, where large firms with multiple layers of management evaluate many projects. It argues that decentralization is more efficient when information is soft, as it provides stronger incentives for line managers to conduct research. In contrast, hierarchy is more efficient when information is hard, as it allows for better capital allocation across divisions. The paper also discusses the implications of soft information for organizational structure, suggesting that flatter organizations are more efficient when information is soft. It argues that hierarchies tend to be inefficient due to excessive bureaucracy, as line managers may focus too much on documentation rather than producing soft information. The paper concludes that the choice between decentralization and hierarchy depends on the nature of the information involved. Decentralization is more effective when information is soft, while hierarchy is more effective when information is hard. The paper also notes that the results are robust to various factors, including the presence of synergies between projects.