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Business Microloans for U.S. Subprime Borrowers

50 Pages Posted: 6 Oct 2012 Last revised: 13 Apr 2016

Cesare Fracassi

University of Texas at Austin

Mark J. Garmaise

University of California, Los Angeles (UCLA) - Anderson School of Management

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management; Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship

Gabriel Natividad

Universidad de Piura

Date Written: 2016

Abstract

We show that business microloans to U.S. subprime borrowers have a very large impact on subsequent firm success. Using data on startup loan applicants from a lender that employed an automated algorithm in its application review, we implement a regression discontinuity design assessing the causal impact of receiving a loan on firms. Startups receiving funding are dramatically more likely to survive, enjoy higher revenues and create more jobs. Loans are more consequential for survival among subprime business owners with more education and less managerial experience.

JEL Classification: G32, L26, M13

Suggested Citation

Fracassi, Cesare and Garmaise, Mark J. and Kogan, Shimon and Natividad, Gabriel, Business Microloans for U.S. Subprime Borrowers (2016). Journal of Financial and Quantitative Analysis (JFQA), 51 (1), 55-83, February 2016. Available at SSRN: https://ssrn.com/abstract=2157707 or http://dx.doi.org/10.2139/ssrn.2157707

Cesare Fracassi

University of Texas at Austin ( email )

Red McCombs School of Business
1 University Station B660
Austin, TX 78712
United States

Mark J. Garmaise (Contact Author)

University of California, Los Angeles (UCLA) - Anderson School of Management ( email )

110 Westwood Plaza
Los Angeles, CA 90095-1481
United States

Shimon Kogan

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

77 Massachusetts Ave. E62-663
Cambridge, MA 02142
United States

Interdisciplinary Center (IDC) Herzliyah - Adelson School of Entrepreneuship ( email )

P.O. Box 167
Herzliya, 46150
Israel

Gabriel Natividad

Universidad de Piura ( email )

Calle Martir Olaya 162
Lima, Lima L18
Peru

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