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SME financing and the choice of lending technology

  • Hirofumi Uchida
  • Gregory F. Udell
  • Nobuyoshi Yamori

Using data from a unique survey in Japan, we investigate the relevance of different lending technologies which are utilized in lending to small- and medium-sized enterprises. We characterize loans from a technology point of view, and ask (i) to what extent different lending technologies are used, (ii) how complementary the technologies are, and (iii) what determines the choice of each technology. We find that although the financial statement lending technology is most commonly used, multiple lending technologies are usually used at the same time. This suggests the existence of complementarity among lending technologies. We also find that individual technologies have their distinct characteristics as well, and, among other findings, smaller banks and banks with a rich accumulation of soft information tend to lend using the relationship lending technology.

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Paper provided by Research Institute of Economy, Trade and Industry (RIETI) in its series Discussion papers with number 06025.

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Length: 44 pages
Date of creation: Apr 2006
Date of revision:
Handle: RePEc:eti:dpaper:06025
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  1. Berger, Allen N. & Miller, Nathan H. & Petersen, Mitchell A. & Rajan, Raghuram G. & Stein, Jeremy C., 2005. "Does function follow organizational form? Evidence from the lending practices of large and small banks," Journal of Financial Economics, Elsevier, vol. 76(2), pages 237-269, May.
  2. 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.
  3. Allen N. Berger & Gregory F. Udell, 1995. "Universal banking and the future of small business lending," Finance and Economics Discussion Series 95-21, Board of Governors of the Federal Reserve System (U.S.).
  4. Elyasiani, Elyas & Goldberg, Lawrence G., 2004. "Relationship lending: a survey of the literature," Journal of Economics and Business, Elsevier, vol. 56(4), pages 315-330.
  5. Kano, Masaji & Uchida, Hirofumi & Udell, Gregory F. & Watanabe, Wako, 2011. "Information verifiability, bank organization, bank competition and bank-borrower relationships," Journal of Banking & Finance, Elsevier, vol. 35(4), pages 935-954, April.
  6. Boot, Arnoud W A & Thakor, Anjan, 1997. "Can Relationship Banking Survive Competition?," CEPR Discussion Papers 1592, C.E.P.R. Discussion Papers.
  7. Klapper, Leora, 2005. "The role of factoring for financing small and medium enterprises," Policy Research Working Paper Series 3593, The World Bank.
  8. Jose M. Liberti & Atif R. Mian, 2009. "Estimating the Effect of Hierarchies on Information Use," Review of Financial Studies, Society for Financial Studies, vol. 22(10), pages 4057-4090, October.
  9. Rebel A. Cole & Lawrence G. Goldberg & Lawrence J. White, 1997. "Cookie-Cutter versus Character: The Micro Structure of Small Business Lending by Large and Small Banks," New York University, Leonard N. Stern School Finance Department Working Paper Seires 98-022, New York University, Leonard N. Stern School of Business-.
  10. Arito Ono & Iichiro Uesugi, 2005. "The Role of Collateral and Personal Guarantees in Relationship Lending: Evidence from Japan's Small Business Loan Market," Discussion papers 05027, Research Institute of Economy, Trade and Industry (RIETI).
  11. Ongena, S. & Smith, D.C., 2000. "Bank relationships : A review," Other publications TiSEM 993b88a5-9a0f-42de-9cec-6, Tilburg University, School of Economics and Management.
  12. Bakker, Marie-Renee & Klapper, Leora & Udell, Gregory F., 2004. "Financing small and medium-size enterprises with factoring: global growth and its potential in eastern Europe," Policy Research Working Paper Series 3342, The World Bank.
  13. Allen N. Berger & W. Scott Frame, 2005. "Small business credit scoring and credit availability," Working Paper 2005-10, Federal Reserve Bank of Atlanta.
  14. Jeremy C. Stein, 2002. "Information Production and Capital Allocation: Decentralized versus Hierarchical Firms," Journal of Finance, American Finance Association, vol. 57(5), pages 1891-1921, October.
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