Does IT Help? Information Technology in Banking and Entrepreneurship

IMF Working Papers, August 6, 2021

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Canonical URL: Does IT Help? Information Technology in Banking and Entrepreneurship

Examines the importance of information technology (IT) in banking for entrepreneurship.
Builds a parsimonious model of bank screening and lending that predicts:
- IT in banking can spur entrepreneurship by making it easier for startups to borrow against collateral.

Empirical setting: U.S. counties with differential exposure to IT-intensive banks.
Main empirical findings:
- Job creation by young firms is stronger in U.S. counties that are more exposed to IT-intensive banks.
- Entrepreneurship increases more in IT-exposed counties when house prices rise, consistent with a strengthened collateral lending channel for IT banks.
- IT in banking increases startup activity without diminishing startup quality.
- IT in banking weakens the importance of geographical distance between borrowers and lenders.

Results suggest that banks' IT adoption can increase dynamism and productivity by:
- Facilitating collateral-based lending to startups.
- Expanding access to credit for geographically distant borrowers.
- Supporting job creation by young firms without reducing startup quality.

Subject: Collateral, Employment, Financial institutions, Job creation, Labor, Self-employment, Technology
Keywords: bank screening, banks' IT adoption, collateral, Collateral, Employment, entrepreneurship, importance of information technology, information technology, IT in banking, Job creation, screening, Self-employment, startup activity, technology in banking

Source: IMF Working Paper "Does IT Help? Information Technology in Banking and Entrepreneurship" (August 6, 2021).