Cookie-Cutter Versus Character: The Micro Structure of Small Business Lending by Large and Small Banks

46 Pages Posted: 23 Feb 2002

See all articles by Lawrence G. Goldberg

Lawrence G. Goldberg

University of Miami - Department of Finance

Rebel A. Cole

Florida Atlantic University

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics

Multiple version iconThere are 3 versions of this paper

Date Written: February 14, 2002

Abstract

The informational opacity of small businesses makes them an interesting area for the study of banks' lending practices and procedures. We use a survey of small businesses conducted by the Federal Reserve to analyze the micro-level differences between large banks and small banks in the loan approval process. We provide evidence that large banks ($1 billion or more in assets) tend to employ standard criteria obtained from financial statements in the loan decision process, but that small banks (less than $1 billion in assets) deviate from these criteria by relying to a larger extent on the character of the borrower. Some of the results are inconsistent, however. These "cookie-cutter" and "character" approaches are compatible with the incentives and environments facing large and small banks.

Keywords: Small business lending, Banks, Relationship banking, and Size of bank

JEL Classification: G21

Suggested Citation

Goldberg, Lawrence G. and Cole, Rebel A. and White, Lawrence J., Cookie-Cutter Versus Character: The Micro Structure of Small Business Lending by Large and Small Banks (February 14, 2002). EFA 2002 Berlin Meetings Discussion Paper. Available at SSRN: https://ssrn.com/abstract=300702 or http://dx.doi.org/10.2139/ssrn.300702

Lawrence G. Goldberg (Contact Author)

University of Miami - Department of Finance

P.O. Box 248094
Coral Gables, FL 33124-6552
United States

Rebel A. Cole

Florida Atlantic University ( email )

College of Business
777 Glades Road
Boca Raton, FL 33431
United States
1-561-297-4969 (Phone)

HOME PAGE: http://rebelcole.com

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics ( email )

44 West 4th Street
Suite 9-160
New York, NY NY 10012
United States

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