The Diffusion of Financial Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organizations

The Diffusion of Financial Innovations: An Examination of the Adoption of Small Business Credit Scoring by Large Banking Organizations

Jalal Akhavein (), W. Scott Frame and Lawrence J. White
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W. Scott Frame: Research Department, Federal Reserve Bank of Atlanta
Lawrence J. White: Stern School of Business, New York University

Journal of Business, 2005, vol. 78, issue 2, pages 577-596

Abstract: Financial innovation has been described as the "life blood of efficient and responsive capital markets." Yet, few quantitative investigations have studied financial innovations and the diffusion of these new technologies. In this paper, we examine the diffusion of one such technology: credit scoring models for small business lending. Using data for large banking organizations, our hazard model indicates that banking firms with more branches innovate earlier, as do those located in the New York Federal Reserve district. Our Tobit model confirms these results and finds that organizations with fewer separately chartered banks but more branches innovate earlier.

Date: 2005
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