The Information Revolution and Small Business Lending: The Missing Evidence
Document Type
Article
Keywords
Borrower-lender distance; Credit scoring; Information technology; Small business lending
Publisher
Springer Science & Business Media B.V.
Abstract
This paper provides empirical confirmation for Petersen and Rajan’s (J Finance 57:2533–2570, 2002) widely accepted conjecture that information technology was the primary driver of the observed increase in small business borrower-lender distances in the U.S. in recent years. Using a different data source for small business loans, we show that annual increases in borrower-lender distances were slow and steady prior to 1993 (the end point in Petersen and Rajan’s data) but accelerated rapidly after that. Importantly, we are able to assign at least half of this acceleration to the adoption of credit scoring technologies by the lending banks. Our tests also reveal strong statistical associations between lending distances and borrower characteristics, lender characteristics, market conditions, regulatory constraints, moral hazard incentives, and principal-agent incentives.
Comments
Published by Springer Science & Business Media B.V. in the Journal of Financial Services Research, volume 39 issue 1/2, 2011. Bryant users may access this journal here.