Information Technology and Credit: Evidence from Public Guarantees

Abstract

This paper investigates whether banks' information technology (IT) can substitute for the importance of physical proximity between bank branches and small businesses in the provision of credit. Our identification strategy relies on loan level data and the institutional features of the Italian public guarantee scheme during Covid-19. Despite the availability of online applications and low screening incentives, small business lending remains local, even for first-time borrowers. However, IT partly mitigates the impact of local branch presence: banks with better IT provide more, cheaper and faster guaranteed loans and lend more in areas where they have no bank branches, especially to first-time borrowers.

Keywords: public guarantees, COVID-19, liquidity constraints, information technology, bank heterogeneity, interest rates

JEL Classification: G32, G38, H25, H32, E62