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The Diffusion of Financial Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organizations

Author

Listed:
  • Jalal Akhavein

    (Moody's Risk Management Services)

  • W. Scott Frame

    (Research Department, Federal Reserve Bank of Atlanta)

  • Lawrence J. White

    (Stern School of Business, New York University)

Abstract

Financial innovation has been described as the "life blood of efficient and responsive capital markets." Yet, few quantitative investigations have studied financial innovations and the diffusion of these new technologies. In this paper, we examine the diffusion of one such technology: credit scoring models for small business lending. Using data for large banking organizations, our hazard model indicates that banking firms with more branches innovate earlier, as do those located in the New York Federal Reserve district. Our Tobit model confirms these results and finds that organizations with fewer separately chartered banks but more branches innovate earlier.

Suggested Citation

  • Jalal Akhavein & W. Scott Frame & Lawrence J. White, 2005. "The Diffusion of Financial Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organizations," The Journal of Business, University of Chicago Press, vol. 78(2), pages 577-596, March.
    • Handle: RePEc:ucp:jnlbus:v:78:y:2005:i:2:p:577-596
    DOI: 10.1086/427639
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    JEL classification:

    • G2 - Financial Economics - - Financial Institutions and Services
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior

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