Cookie Cutter vs. Character: The Micro Structure of Small Business Lending by Large and Small Banks

Cole, Rebel A.; Goldberg, Lawrence G.; White, Lawrence J.
June 2004
Journal of Financial & Quantitative Analysis;Jun2004, Vol. 39 Issue 2, p227
Academic Journal
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 small banks rely to a greater 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.


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