SME Financing and the Deployment of Lending Technologies in Japan

Posted: 28 Dec 2010 Last revised: 14 May 2014

Hirofumi Uchida

Kobe University - Graduate School of Business Administration

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: March 1, 2007

Abstract

The current literature on SME loan underwriting assumes that banks use just one of two lending technologies: relationship lending for opaque SMEs and transactions-based lending for relatively transparent SMEs. Recent work has departed from this view and hypothesizes that banks use a variety of distinctly different lending technologies. It emphasizes that the typical SME bank loan is underwritten primarily based on just one of these technologies and that many different transactions-based technologies are well-suited for opaque SMEs (e.g., Berger and Udell 2006). We test these propositions using data on Japanese SMEs and find that although financial statement lending is the most commonly used lending technology and serves as a kind of basic technology, it tends not to be used to the exclusion of other technologies. We also find evidence that the deployment of different lending technologies does not vary across different bank types. These findings imply that, at least in Japan, SME lending practice is generally inconsistent with much of the academic research on how banks underwrite loans.

Keywords: Lending technology, Financial statement lending, Fixed asset lending, Relationship lending, Small- and medium-sized enterprises

JEL Classification: G21, L14, D82, L22

Suggested Citation

Uchida, Hirofumi and Yamori, Nobuyoshi and Udell, Gregory F., SME Financing and the Deployment of Lending Technologies in Japan (March 1, 2007). Available at SSRN: https://ssrn.com/abstract=976815 or http://dx.doi.org/10.2139/ssrn.976815

Hirofumi Uchida (Contact Author)

Kobe University - Graduate School of Business Administration ( email )

2-1, Rokkodai-cho, Nada-ku
Kobe, 657-8501
Japan
81-78-803-6949 (Phone)

HOME PAGE: http://www.b.kobe-u.ac.jp/~uchida

Nobuyoshi Yamori

Kobe University - Research Institute for Economics & Business Administration ( email )

2-1, Rokkodai cho
Nada-ku
Kobe, 657-8501
Japan

Gregory F. Udell

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States

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