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|Title: ||The Diffusion of Financial Innovations: An Examination of the Adoption
of Small Business Credit Scoring By Large Banking Organizations|
|Authors: ||Akhavein, Jalal|
Frame, W. Scott
White, Lawrence J.
|Keywords: ||Credit Scoring|
Small Business Lending
|Issue Date: ||Mar-2001 |
|Series/Report no.: ||EC-01-08|
|Abstract: ||Financial innovation has been described as the "life blood of
efficient and responsive capital markets." Yet, there have been few
quantitative investigations of financial innovation and the diffusion of
these new technologies. Of the latter, there have been only three prior
quantitative studies, and all three used the same data set on ATMs! This
paper makes a significant contribution to the financial innovation
literature by examining the diffusion of a recent important innovation
of the 1990s: banks' use of credit scoring for small business lending.
We examine the responses of 95 large banking organizations to a survey
that asked whether they had adopted credit scoring for small business
lending as of June 1997 (56 had done so) and, if they had adopted it,
when they had done so. We estimate hazard and tobit models to explain
the diffusion pattern of small business credit scoring models.
Explanatory variables include several market, firm, and managerial
factors of the banking organizations' under study. The hazard model
indicates that larger banking organizations innovated earlier, as did
those located in the New York Federal Reserve district; both results are
consistent with our expectations. The tobit model confirms these results
and also finds that organizations with fewer separately chartered banks
but more branches innovated earlier, which is consistent with theories
stressing the importance of bank organizational form on lending style.
Though the managerial variables' signs are consistent with our
expectations, none yields significant results.|
|Appears in Collections:||Economics Working Papers|
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