Cookie-Cutter Versus Character: The Micro Structure of Small-Business Lending by Large and Small Banks

Cole, Rebel A.; Goldberg, Lawrence G.; White, Lawrence J.

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Cookie-Cutter Versus Character: The Micro Structure of Small-Business Lending by Large and Small Banks

Journal of Financial and Quantitative Analysis, Vol. 39, No. 2, June 2004

43 Pages Posted: 2 May 2004 Last revised: 10 Apr 2010

See all articles by Rebel A. Cole

Lawrence G. Goldberg

University of Miami - Department of Finance

Lawrence J. White

New York University (NYU) - Leonard N. Stern School of Business, Department of Economics; Stern School of Business, New York University

There are 3 versions of this paper

Date Written: June 11, 2003

Abstract

The informational opacity of small businesses makes them an interesting area for the study of banks' lending practices and procedures. We use data from a survey of small businesses to analyze the micro-level differences in the loan-approval processes of large and small banks. We provide evidence that large banks ($1 billion or more in assets) employ standard criteria obtained from financial statements in the loan decision process, whereas smaller banks rely to a larger extent on information about the character of the borrower. These cookie-cutter and character approaches are compatible with the incentives and environments facing large and small banks.

Keywords: Bank, bank size, credit availability, relationship lending, small business

JEL Classification: G21, G32

Suggested Citation: Suggested Citation

Cole, Rebel A. and Goldberg, Lawrence G. and White, Lawrence J. and White, Lawrence J., Cookie-Cutter Versus Character: The Micro Structure of Small-Business Lending by Large and Small Banks (June 11, 2003). Journal of Financial and Quantitative Analysis, Vol. 39, No. 2, June 2004, Available at SSRN: https://ssrn.com/abstract=536302