Investing in Lending Technology: IT Spending in Banking

66 Pages Posted: 6 Oct 2021

See all articles by Zhiguo He

Zhiguo He

University of Chicago - Finance

Sheila Jiang

University of Florida - Department of Finance, Insurance and Real Estate

Douglas Xu

University of Florida - Warrington College of Business Administration

Xiao Yin

University of California, Berkeley - Haas School of Business

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2021

Abstract

This paper investigates lending technologies in the banking sector after the arrival of the information age, by examining investment in information technologies (IT) by U.S. commercial banks. Given the distinctive nature of banks’ dealings with information as they engage in lending activities, we link banks’ IT spending in various categories to different aspects of their lending technologies. Investment in communication IT is shown to be associated more with improving banks’ ability of soft information production and transmission, while investment in software IT helps enhance banks’ hard information processing capacity. By exploiting polices that affect geographic regions differentially, we show that banks respond to an increased demand for small business credit (mortgage refinance) by increasing their spending on communication (software) IT spending. We also find an asymmetric impact of technological development on labor employment in the banking sector.

Keywords: Information Technology, Small Business Lending, Mortgage Refinance, Communication Equipment, Software, Hard and Soft Information

JEL Classification: G21, G51, J24, O32

Suggested Citation

He, Zhiguo and Jiang, Sheila and Xu, Douglas and Yin, Xiao, Investing in Lending Technology: IT Spending in Banking (October 5, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-116, Available at SSRN: https://ssrn.com/abstract=3936767 or http://dx.doi.org/10.2139/ssrn.3936767

Zhiguo He (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

HOME PAGE: http://www.zhiguohe.com

Sheila Jiang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Douglas Xu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Xiao Yin

University of California, Berkeley - Haas School of Business ( email )

545 Student Services Building, #1900
2220 Piedmont Avenue
Berkeley, CA 94720
United States

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