The Information Revolution And Small Business Lending: The Missing Evidence

This paper provides empirical confirmation for Petersen and Rajan's (2002) widely accepted conjecture that information technology was the primary driver of the observed increase in small business borrower-lender distances in the United States in recent years. Using a different data source for small business loans, the authors 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, they are able to assign at least half of this acceleration to the adoption of credit scoring technologies by the lending banks. These 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.

Provided by: Federal Reserve Bank of Atlanta Topic: SMBs Date Added: Mar 2010 Format: PDF

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