Lending to Small Businesses: The Value of Soft Information

40 Pages Posted: 31 Jan 2011

See all articles by Emilia Garcia-Appendini

Emilia Garcia-Appendini

Norges Bank; University of Zurich - Department Finance

Date Written: January 28, 2011

Abstract

We examine whether banks use soft information in their lending decisions. To overcome the problem of soft information measurement, we analyze whether publicly available variables that are correlated with the borrowers' credit quality are more significant in explaining the lending decisions of banks that have no soft information. We find that the power of these variables to predict credit outcomes is lower whenever the bank has access to soft information. The results indicate the importance of soft information in small business lending, and are robust to several measures of soft information availability, and to a potentially endogenous relationship between soft information and credit quality.

Keywords: Soft information, banking, credit history, reputation

JEL Classification: G21, G32, D82

Suggested Citation

Garcia-Appendini, Emilia, Lending to Small Businesses: The Value of Soft Information (January 28, 2011). Available at SSRN: https://ssrn.com/abstract=1750056 or http://dx.doi.org/10.2139/ssrn.1750056

Emilia Garcia-Appendini (Contact Author)

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

University of Zurich - Department Finance ( email )

Schönberggasse 1
Zürich, 8001
Switzerland

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