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On government intervention in the small-firm credit market and its effect on economic performance

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  • Ben R. Craig
  • William E. Jackson, III
  • James B. Thomson

Abstract

In this paper we empirically test whether the Small Business Administration’s main guaranteed lending program—the 7(a) program—has a greater impact on economic performance in low-income markets than in others. This hypothesis is predicated on our previous research (Craig, Jackson, and Thomson 2007b), where we investigate aggregate SBA guaranteed lending. In that research we found that the overall impact of SBA guaranteed lending on economic performance is significant and positive in low-income markets.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Cleveland in its series Working Paper with number 0702.

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Date of creation: 2007
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Handle: RePEc:fip:fedcwp:0702

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Keywords: Small Business Administration ; Small business - Finance ; Economic development;

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References

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  1. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  2. Walker F. Todd, 1992. "History of and rationales for the Reconstruction Finance Corporation," Economic Review, Federal Reserve Bank of Cleveland, issue Q IV, pages 22-35.
  3. Mitchell A. Petersen & Raghuram G. Rajan, 2002. "Does Distance Still Matter? The Information Revolution in Small Business Lending," Journal of Finance, American Finance Association, vol. 57(6), pages 2533-2570, December.
  4. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2005. "The role of relationships in small-business lending," Economic Commentary, Federal Reserve Bank of Cleveland, issue Oct.
  5. Raghuram G. Rajan & Luigi Zingales, . "Financial Dependence and Growth," CRSP working papers 344, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
  6. Allen N. Berger & Gregory F. Udell, 1998. "The economics of small business finance: the roles of private equity and debt markets in the financial growth cycle," Finance and Economics Discussion Series 1998-15, Board of Governors of the Federal Reserve System (U.S.).
  7. Luigi Guiso & Paola Sapienza & Luigi Zingales, 2002. "Does Local Financial Development Matter?," NBER Working Papers 8923, National Bureau of Economic Research, Inc.
  8. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  9. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2004. "Are SBA loan guarantees desirable?," Economic Commentary, Federal Reserve Bank of Cleveland, issue Sep.
  10. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  11. Petersen, Mitchell A & Rajan, Raghuram G, 1995. "The Effect of Credit Market Competition on Lending Relationships," The Quarterly Journal of Economics, MIT Press, vol. 110(2), pages 407-43, May.
  12. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2004. "On SBA-guaranteed lending and economic growth," Working Paper 0403, Federal Reserve Bank of Cleveland.
  13. Sherrill Shaffer, 1994. "Bank competition in concentrated markets," Business Review, Federal Reserve Bank of Philadelphia, issue Mar, pages 3-16.
  14. Ben R. Craig & William E. Jackson, III & James B. Thomson, 2005. "SBA-loan guarantees and local economic growth," Working Paper 0503, Federal Reserve Bank of Cleveland.
  15. Paul S. Calem & Gerald A. Carlino, 1989. "The concentration/conduct relationship in bank deposit markets," Working Papers 89-26, Federal Reserve Bank of Philadelphia.
  16. Jackson, William E, III, 1992. "Is the Market Well Defined in Bank Merger and Acquisition Analysis?," The Review of Economics and Statistics, MIT Press, vol. 74(4), pages 655-61, November.
  17. Allen N. Berger & Timothy H. Hannan, 1988. "The price-concentration relationship in banking," Finance and Economics Discussion Series 23, Board of Governors of the Federal Reserve System (U.S.).
  18. Cowling, Marc & Mitchell, Peter, 2003. " Is the Small Firms Loan Guarantee Scheme Hazardous for Banks or Helpful to Small Business?," Small Business Economics, Springer, vol. 21(1), pages 63-71, August.
  19. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  20. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
  21. Frame, W Scott & Srinivasan, Aruna & Woosley, Lynn, 2001. "The Effect of Credit Scoring on Small-Business Lending," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 33(3), pages 813-25, August.
  22. Wennekers, Sander & Thurik, Roy, 1999. " Linking Entrepreneurship and Economic Growth," Small Business Economics, Springer, vol. 13(1), pages 27-55, August.
  23. Shaffer, Sherrill, 2004. "Patterns of competition in banking," Journal of Economics and Business, Elsevier, vol. 56(4), pages 287-313.
  24. Jayaratne, Jith & Strahan, Philip E, 1996. "The Finance-Growth Nexus: Evidence from Bank Branch Deregulation," The Quarterly Journal of Economics, MIT Press, vol. 111(3), pages 639-70, August.
  25. Berger, Allen N & Frame, W Scott & Miller, Nathan H, 2005. "Credit Scoring and the Availability, Price, and Risk of Small Business Credit," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 37(2), pages 191-222, April.
  26. Ross Levine, 1997. "Financial Development and Economic Growth: Views and Agenda," Journal of Economic Literature, American Economic Association, vol. 35(2), pages 688-726, June.
  27. W. Scott Frame & Michael Padhi & Lynn Woosley, 2001. "The effect of credit scoring on small business lending in low- and moderate-income areas," Working Paper 2001-6, Federal Reserve Bank of Atlanta.
  28. Myers, Stewart C. & Majluf, Nicholas S., 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Journal of Financial Economics, Elsevier, vol. 13(2), pages 187-221, June.
  29. Stewart C. Myers & Nicholas S. Majluf, 1984. "Corporate Financing and Investment Decisions When Firms Have InformationThat Investors Do Not Have," NBER Working Papers 1396, National Bureau of Economic Research, Inc.
  30. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
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  32. Allen N. Berger & W. Scott Frame, 2005. "Small business credit scoring and credit availability," Working Paper 2005-10, Federal Reserve Bank of Atlanta.
  33. Jackson, William E, III, 1992. "The Price-Concentration Relationship in Banking: A Comment," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 373-76, May.
  34. Sherrill Shaffer, 2006. "Establishment Size by Sector and County-Level Economic Growth," Small Business Economics, Springer, vol. 26(2), pages 145-154, 03.
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Cited by:
  1. Uesugi, Iichiro & Sakai, Koji & Yamashiro, Guy M., 2010. "The Effectiveness of Public Credit Guarantees in the Japanese Loan Market," Journal of the Japanese and International Economies, Elsevier, vol. 24(4), pages 457-480, December.
  2. Honohan, Patrick, 2010. "Partial credit guarantees: Principles and practice," Journal of Financial Stability, Elsevier, vol. 6(1), pages 1-9, April.

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