IDEAS home Printed from https://ideas.repec.org/a/mcb/jmoncb/v37y2005i2p191-222.html
   My bibliography  Save this article

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

Author

Listed:
  • 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
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    Other versions of this item:

    References listed on IDEAS

    as
    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.
    3. Mitchell A. Petersen & Raghuram G. Rajan, 2000. "Does Distance Still Matter? The Information Revolution in Small Business Lending," NBER Working Papers 7685, National Bureau of Economic Research, Inc.
    4. D. J. Hand & W. E. Henley, 1997. "Statistical Classification Methods in Consumer Credit Scoring: a Review," Journal of the Royal Statistical Society Series A, Royal Statistical Society, vol. 160(3), pages 523-541, September.
    5. Allen N. Berger & Gregory F. Udell, 2002. "Small Business Credit Availability and Relationship Lending: The Importance of Bank Organisational Structure," Economic Journal, Royal Economic Society, vol. 112(477), pages 32-53, February.
    6. Timothy H. Hannan & John M. McDowell, 1984. "The Determinants of Technology Adoption: The Case of the Banking Firm," RAND Journal of Economics, The RAND Corporation, vol. 15(3), pages 328-335, Autumn.
    7. Berger, Allen N. & Saunders, Anthony & Scalise, Joseph M. & Udell, Gregory F., 1998. "The effects of bank mergers and acquisitions on small business lending," Journal of Financial Economics, Elsevier, vol. 50(2), pages 187-229, November.
    8. Wheelock, David C & Wilson, Paul W, 1999. "Technical Progress, Inefficiency, and Productivity Change in U.S. Banking, 1984-1993," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 31(2), pages 212-234, May.
    9. Gautam Gowrisankaran & Joanna Stavins, 2004. "Network Externalities and Technology Adoption: Lessons from Electronic Payments," RAND Journal of Economics, The RAND Corporation, vol. 35(2), pages 260-276, Summer.
    10. 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.
    11. Ron J. Feldman, 1997. "Small business loans, small banks and big change in technology called credit scoring," The Region, Federal Reserve Bank of Minneapolis, vol. 11(Sep), pages 19-25.
    12. Thomas F. Brady & William B. English & William R. Nelson, 1998. "Recent changes to the Federal Reserve's survey of terms of business lending," Federal Reserve Bulletin, Board of Governors of the Federal Reserve System (U.S.), issue Aug, pages 604-615.
    13. 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.
    14. Robert B. Avery & Raphael W. Bostic & Paul S. Calem & Glenn B. Canner, 2000. "Credit Scoring: Statistical Issues and Evidence from Credit-Bureau Files," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 28(3), pages 523-547.
    15. Myron L. Kwast & Martha Starr-McCluer & John D. Wolken, 1997. "Market definition and the analysis of antitrust in banking," Finance and Economics Discussion Series 1997-52, Board of Governors of the Federal Reserve System (U.S.).
    16. Loretta J. Mester, 1997. "What's the point of credit scoring?," Business Review, Federal Reserve Bank of Philadelphia, issue Sep, pages 3-16.
    17. W. Scott Frame & Michael Padhi & Lynn W. Woosley, 2001. "The effect of credit scoring on small business lending in low- and moderate-income areas," FRB Atlanta Working Paper 2001-6, Federal Reserve Bank of Atlanta.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Allen N. Berger & Astrid A. Dick & Lawrence G. Goldberg & Lawrence White, 2005. "The Effects of Competition from Large, Multimarket Firms on the Performance of Small, Single-Market Firms: Evidence from the Banking Industry," Working Papers 05-02, New York University, Leonard N. Stern School of Business, Department of Economics.
    2. Allen N. Berger & Astrid A. Dick & Lawrence G. Goldberg & Lawrence J. White, 2007. "Competition from Large, Multimarket Firms and the Performance of Small, Single‐Market Firms: Evidence from the Banking Industry," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 39(2‐3), pages 331-368, March.
    3. Degryse, H.A. & Cerqueiro, G.M. & Ongena, S., 2007. "Distance, Bank Organizational Structure and Credit," Other publications TiSEM 34c2f607-3395-4fd9-9c52-4, Tilburg University, School of Economics and Management.
    4. Robert DeYoung & William Hunter & Gregory Udell, 2004. "The Past, Present, and Probable Future for Community Banks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 25(2), pages 85-133, April.
    5. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banks, regions and development," Banca Nazionale del Lavoro Quarterly Review, Banca Nazionale del Lavoro, vol. 56(224), pages 23-55.
    6. Pietro Alessandrini & Luca Papi & Alberto Zazzaro, 2003. "Banche, territorio e sviluppo," Moneta e Credito, Economia civile, vol. 56(221), pages 3-43.
    7. Kenneth P. Brevoort & John D. Wolken, 2008. "Does distance matter in banking?," Finance and Economics Discussion Series 2008-34, Board of Governors of the Federal Reserve System (U.S.).
    8. repec:dau:papers:123456789/5897 is not listed on IDEAS
    9. Hervé Alexandre & Aymen Smondel, 2010. "Substitution or complementarity between “soft” information and "hard" information : why and which effect on bank profitability ?," Post-Print hal-01622847, HAL.
    10. repec:dau:papers:123456789/5068 is not listed on IDEAS
    11. Cerqueiro, Geraldo & Degryse, Hans & Ongena, Steven, 2011. "Rules versus discretion in loan rate setting," Journal of Financial Intermediation, Elsevier, vol. 20(4), pages 503-529, October.
    12. Hernández-Murillo, Rubén & Llobet, Gerard & Fuentes, Roberto, 2010. "Strategic online banking adoption," Journal of Banking & Finance, Elsevier, vol. 34(7), pages 1650-1663, July.
    13. Yehning Chen & Rachel Huang & John Tsai & Larry Tzeng, 2015. "Soft Information and Small Business Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 47(1), pages 115-133, February.
    14. Ozgur Emre Ergungor, 2010. "Bank Branch Presence and Access to Credit in Low- to Moderate-Income Neighborhoods," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(7), pages 1321-1349, October.
    15. Ergungor, O. Emre, 2005. "The profitability of bank-borrower relationships," Journal of Financial Intermediation, Elsevier, vol. 14(4), pages 485-512, October.
    16. Bos, Jaap W.B. & Kolari, James W. & van Lamoen, Ryan C.R., 2013. "Competition and innovation: Evidence from financial services," Journal of Banking & Finance, Elsevier, vol. 37(5), pages 1590-1601.
    17. Berger, Allen N. & Goulding, William & Rice, Tara, 2014. "Do small businesses still prefer community banks?," Journal of Banking & Finance, Elsevier, vol. 44(C), pages 264-278.
    18. W. Scott Frame & Lawrence J. White, 2004. "Empirical Studies of Financial Innovation: Lots of Talk, Little Action?," Journal of Economic Literature, American Economic Association, vol. 42(1), pages 116-144, March.
    19. DeYoung, Robert & Glennon, Dennis & Nigro, Peter, 2008. "Borrower-lender distance, credit scoring, and loan performance: Evidence from informational-opaque small business borrowers," Journal of Financial Intermediation, Elsevier, vol. 17(1), pages 113-143, January.
    20. David Ely & Kenneth Robinson, 2009. "Credit Unions and Small Business Lending," Journal of Financial Services Research, Springer;Western Finance Association, vol. 35(1), pages 53-80, February.
    21. Donal G. MCKILLOP & Barry QUINN, 2015. "Web Adoption By Irish Credit Unions: Performance Implications," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 86(3), pages 421-443, September.
    22. Mkhaiber, Achraf & Werner, Richard A., 2021. "The relationship between bank size and the propensity to lend to small firms: New empirical evidence from a large sample," Journal of International Money and Finance, Elsevier, vol. 110(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:mcb:jmoncb:v:37:y:2005:i:2:p:191-222. See general information about how to correct material in RePEc.

    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 CitEc recognized a bibliographic reference but did not link an item in RePEc 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 RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley-Blackwell Digital Licensing or Christopher F. Baum (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=0022-2879 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.