Journal of Financial Services Research

, Volume 39, Issue 1–2, pp 19–33 | Cite as

The Information Revolution and Small Business Lending: The Missing Evidence

  • Robert DeYoung
  • W. Scott Frame
  • Dennis Glennon
  • Peter Nigro


This paper provides empirical confirmation for Petersen and Rajan’s (J Finance 57:2533–2570, 2002) widely accepted conjecture that information technology was the primary driver of the observed increase in small business borrower-lender distances in the U.S. in recent years. Using a different data source for small business loans, we show that annual increases in borrower-lender distances were slow and steady prior to 1993 (the end point in Petersen and Rajan’s data) but accelerated rapidly after that. Importantly, we are able to assign at least half of this acceleration to the adoption of credit scoring technologies by the lending banks. Our tests also reveal strong statistical associations between lending distances and borrower characteristics, lender characteristics, market conditions, regulatory constraints, moral hazard incentives, and principal-agent incentives.


Borrower-lender distance Credit scoring Information technology Small business lending 

JEL Classifications

G21 O33 


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Copyright information

© US Government 2010

Authors and Affiliations

  • Robert DeYoung
    • 1
  • W. Scott Frame
    • 2
  • Dennis Glennon
    • 3
  • Peter Nigro
    • 4
  1. 1.University of KansasLawrenceUSA
  2. 2.Federal Reserve Bank of AtlantaAtlantaUSA
  3. 3.Office of the Comptroller of the CurrencyWashingtonUSA
  4. 4.Bryant UniversitySmithfieldUSA

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