Regulatory Risk Perception and Small Business Lending

51 Pages Posted: 16 Aug 2021

See all articles by Joseph Kalmenovitz

Joseph Kalmenovitz

Drexel University

Siddharth Vij

University of Georgia Terry College of Business

Date Written: August 12, 2021

Abstract

We study how Small Business Administration (SBA) employees respond to salient defaults. Using novel data to identify employees transferring across SBA offices, we find that defaults on SBA loans in their previous workplace reduce SBA loans in their current workplace. The effect is independent of local risk conditions and the informational content of the non-local defaults, consistent with a mechanical updating of risk perceptions among local SBA employees and inconsistent with rational learning. The local SBA loan market becomes geographically clustered and concentrated among fewer borrowers and lenders, especially those who have prior relationships with the SBA, suggesting higher barriers for participation.

Keywords: small business lending, default risk, risk salience, government guarantees

JEL Classification: D02, D73, G28, G41

Suggested Citation

Kalmenovitz, Joseph and Vij, Siddharth, Regulatory Risk Perception and Small Business Lending (August 12, 2021). Available at SSRN: https://ssrn.com/abstract=3904357 or http://dx.doi.org/10.2139/ssrn.3904357

Joseph Kalmenovitz (Contact Author)

Drexel University ( email )

Philadelphia, PA 19104
United States

HOME PAGE: http://sites.google.com/view/jkalmenovitz

Siddharth Vij

University of Georgia Terry College of Business ( email )

620 S. Lumpkin Street
Amos Hall, B324
Athens, GA 30602
United States

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