The effect of credit scoring on small business lending in low- and moderate-income areas
This paper empirically examines the effect of the use of credit scoring by large banking organizations on small business lending in low- and moderate-income (LMI) areas. Using census tract level data for the southeastern United States, the authors estimate that credit scoring increases small business lending by $16.4 million per LMI area served. Furthermore, this effect is almost 2.5 times larger than that estimated for higher income census tracts ($6.8 million). The authors also find that credit scoring increases the probability that a large banking organization will make small business loans in a given census tract. The change in this probability is 3.8 percent for LMI areas and 1.7 percent for higher income areas. These findings suggest that credit scoring reduces asymmetric information problems for borrowers and lenders and that this is particularly important for LMI areas, which lenders may have historically bypassed because of their questionable economic health.
|Date of creation:||2001|
|Contact details of provider:|| Postal: 1000 Peachtree St., N.E., Atlanta, Georgia 30309|
Web page: http://www.frbatlanta.org/
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Oliver E. Williamson, 1967. "The Economics of Defense Contracting: Incentives and Performance," NBER Chapters,in: Issues in Defense Economics, pages 217-278 National Bureau of Economic Research, Inc.
- Ron J. Feldman, 1997. "Small business loans, small banks and big change in technology called credit scoring," The Region, Federal Reserve Bank of Minneapolis, issue Sep, pages 19-25.
- 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.).
- Allen N. Berger & Gregory F. Udell, 1995. "Universal Banking and the Future of Small Business Lending," Center for Financial Institutions Working Papers 95-17, Wharton School Center for Financial Institutions, University of Pennsylvania.
- 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 813-825, August.
- Helen F. Ladd, 1998. "Evidence on Discrimination in Mortgage Lending," Journal of Economic Perspectives, American Economic Association, vol. 12(2), pages 41-62, Spring.
- 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 351-381, July.
- W. Scott Frame, 1995. "Examining small business lending in bank antitrust analysis," Economic Review, Federal Reserve Bank of Atlanta, issue Mar, pages 31-40.
- 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.
- McDonald, John F & Moffitt, Robert A, 1980. "The Uses of Tobit Analysis," The Review of Economics and Statistics, MIT Press, vol. 62(2), pages 318-321, May.
- Cole, Rebel A., 1998. "The importance of relationships to the availability of credit," Journal of Banking & Finance, Elsevier, vol. 22(6-8), pages 959-977, August.
- 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-.
- Rebel A. Cole & Lawrence G. Goldberg & Lawrence J. White, 1999. "Cookie-cutter versus character: the micro structure of small business lending by large and small banks," Proceedings 777, Federal Reserve Bank of Chicago.
- Allen N. Berger & Anil K. Kashyap & Joseph M. Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trips It's Been," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(2), pages 55-218.
- Allen N. Berger & Anil K. Kashyap & Joseph Scalise, 1995. "The Transformation of the U.S. Banking Industry: What a Long, Strange Trip It's Been," Center for Financial Institutions Working Papers 96-06, Wharton School Center for Financial Institutions, University of Pennsylvania.
- Loretta J. Mester, 1997. "What's the point of credit scoring?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-16.
- 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. Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fedawp:2001-6. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elaine Clokey)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.