Regulatory Risk Perception and Small Business Lending

92 Pages Posted: 16 Aug 2021 Last revised: 22 Jun 2022

See all articles by Joseph Kalmenovitz

Joseph Kalmenovitz

University of Rochester - Simon Business School

Siddharth Vij

University of Georgia Terry College of Business

Date Written: August 12, 2021

Abstract

We uncover a significant friction in small business lending: perception of risk by Small Business Administration employees. Using novel data on SBA employees transferring across offices, we find that defaults on SBA loans in their previous location reduce SBA loans and job creation in their current location. The effect is independent of local economic conditions and the informational content of the non-local defaults, suggesting that SBA employees update their risk assessment irrationally. Our results are the first to document that regulators' potential misperception of economic conditions affects the ability of small businesses to obtain access to finance.

Keywords: regulatory incentives, risk perception, government guarantees, small business lending, default risk

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)

University of Rochester - Simon Business School ( email )

Rochester, NY 14627
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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