Do banks that use Information Technology tools spur entrepreneurship?

Toni Ahnert, Sebastian Doerr, Nicola Pierri and Yannick Timmer in this BIS paper ask the question: Do banks that use IT spur entrepreneurship?  Their research says yes:

This paper analyzes the importance of information technology (IT) in banking for entrepreneurship. To guide our analysis, we build a parsimonious model of bank screening and lending that predicts that IT in banking can spur entrepreneurship by making it easier for startups to borrow against collateral. We then empirical show that job creation by young firms is stronger in US counties that are more exposed to IT-intensive banks.

Consistent with a strengthened collateral lending channel, entrepreneurship increases by more in IT-exposed counties when house prices rise. In line with the model’s implications, higher startup activity does not diminish startup quality. Instrumental variable regressions at the bank level further show that IT makes banks’ credit supply more responsive to changes in local house prices, and weakens the importance of geographical distance between borrowers and lenders.

These results suggest that banks’ IT adoption can increase dynamism by improving startups’ access to finance.

 

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