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Business Microloans for U.S. Subprime Borrowers

Published online by Cambridge University Press:  12 April 2016

Cesare Fracassi*
Affiliation:
cesare.fracassi@mccombs.utexas.edu, University of Texas at Austin, McCombs School of Business, Austin, TX 78712
Mark J. Garmaise
Affiliation:
mark.garmaise@anderson.ucla.edu, University of California at Los Angeles, Anderson School of Management, Los Angeles, CA 90095
Shimon Kogan
Affiliation:
skogan@idc.ac.il, Interdisciplinary Center (IDC) Herzliya, Arison School of Business, Herzliya 46150, Israel, and University of Texas at Austin
Gabriel Natividad
Affiliation:
gabriel.natividad@udep.pe, Universidad de Piura, Department of Economics, Lima 18, Peru.
*
*Corresponding author: cesare.fracassi@mccombs.utexas.edu

Abstract

We show that business microloans to U.S. subprime borrowers have a very large impact on subsequent firm success. Using data on startup loan applicants from a lender that employed an automated algorithm in its application review, we implement a regression discontinuity design assessing the causal impact of receiving a loan on firms. Startups receiving funding are dramatically more likely to survive, enjoy higher revenues, and create more jobs. Loans are more consequential for survival among subprime business owners with more education and less managerial experience.

Type
Research Articles
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2016 

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