Do Entrepreneur Behavioral Traits Explain Small Business Credit Outcomes?

Posted: 18 Jun 2021

See all articles by Chen Lin

Chen Lin

The University of Hong Kong - Faculty of Business and Economics

Ye Luo

Faculty of Business and Economics, The University of Hong Kong

Mingzhu Tai

The University of Hong Kong, Faculty of Business and Economics

Date Written: June 15, 2021

Abstract

Using bank administrative data on entrepreneurs’ personal and business activities, we show that an entrepreneur’s personal behaviors, which are revealed from personal consumption, finance, and credit activities, can well predict the future credit outcome of her business. Utilizing advanced machine learning methods, we find the predictive power of entrepreneur personal behaviors significantly outperform the firm-specific characteristics. By incorporating entrepreneur personal features into credit assessment, lenders can reduce the predicted default rate of small business borrowers by about half. Our finding sheds light on the informational value of entrepreneur personal traits to creditors and investors.

Keywords: Entrepreneur personal traits, Managerial behavioral consistency, Credit risk, Machine learning

JEL Classification: G40, G21, C55, C58

Suggested Citation

Lin, Chen and Luo, Ye and Tai, Mingzhu, Do Entrepreneur Behavioral Traits Explain Small Business Credit Outcomes? (June 15, 2021). Available at SSRN: https://ssrn.com/abstract=3867462

Chen Lin

The University of Hong Kong - Faculty of Business and Economics ( email )

Pokfulam Road
Hong Kong
China

Ye Luo

Faculty of Business and Economics, The University of Hong Kong ( email )

Hong Kong

Mingzhu Tai (Contact Author)

The University of Hong Kong, Faculty of Business and Economics ( email )

8th Floor Kennedy Town Centre
23 Belcher's Street
Kennedy Town
Hong Kong

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