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Credit Scoring and the Availability, Price, and Risk of Small Business Credit

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  • Berger, Allen N
  • Frame, W Scott
  • Miller, Nathan H

Abstract

We find that small business credit scoring (SBCS) is associated with expanded quantities, higher average prices, and greater average risk levels for small business credits under $100,000, after controlling for bank size and other differences across banks. We also find that: 1) bank-specific and industry learning curves are important; 2) SBCS effects differ for banks that adhere to "rules" versus "discretion" in using the technology; and 3) SBCS effects differ for larger credits. The data do not support two alternative explanations of the main results under which the findings primarily represent statistical artifacts, rather than significant changes in lending behavior.

Suggested Citation

  • 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.
    • Handle: RePEc:mcb:jmoncb:v:37:y:2005:i:2:p:191-222
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    References listed on IDEAS

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    1. Berger, Allen N. & Mester, Loretta J., 2003. "Explaining the dramatic changes in performance of US banks: technological change, deregulation, and dynamic changes in competition," Journal of Financial Intermediation, Elsevier, vol. 12(1), pages 57-95, January.
    2. 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.
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