Bigtech credit, small business, and monetary policy transmission: Theory and evidence

Yiping Huang, Xiang Li, Han Qiu, Dan Su and Changhua Yu

No 18/2022, IWH Discussion Papers from Halle Institute for Economic Research (IWH)

Abstract: This paper provides both theoretical and empirical analyses of the differences between BigTech lenders and traditional banks in response to monetary policy changes. Our model integrates Knightian uncertainty into portfolio selection and posits that BigTech lenders possess a diminishing informational advantage with increasing firm size, resulting in reduced ambiguity when lending to smaller firms. The model suggests that the key distinction between BigTech lenders and traditional banks in response to shifts in funding costs, triggered by monetary policy changes, is more evident at the extensive margin rather than the intensive margin, particularly during periods of easing monetary policy. Using a micro-level dataset of small business loans from both types of lenders, we provide empirical support for our theoretical propositions. Our results show that BigTech lenders are more responsive in establishing new lending relationships in an easing monetary policy environment, while the differences in loan amounts are not statistically significant. We also discuss other loan terms and the implications of regulatory policies.

Keywords: bank lending; financial technology; monetary policy transmission (search for similar items in EconPapers)
JEL-codes: E52 G21 G23 (search for similar items in EconPapers)
Date: 2024, Revised 2024
New Economics Papers: this item is included in nep-ban, nep-cba, nep-cna, nep-fdg, nep-mon and nep-pay
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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