How Costly are Cultural Biases?

D’Acunto, Francesco; Ghosh, Pulak; Jain, Rajiv; Rossi, Alberto G.

doi:10.2139/ssrn.3736117

SSRN Journal

2020

DOI: 10.2139/ssrn.3736117

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How Costly are Cultural Biases?

Francesco D’Acunto

Pulak Ghosh

Rajiv Jain³

et al.

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Cited by 12 publications

(2 citation statements)

References 87 publications

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“…Finally, we add to a literature that assesses the role of fintech firms in the financial system (Seru, 2019;Philippon, 2019;Federal Reserve, 2020;Ranson, 2020;Gopal and Schnabl, 2020). Most directly related is a literature that has explored the role of fintech lenders in extending credit to traditionally underserved minorities (Tang, 2019;Balyuk et al, 2020;Fuster et al, 2019;Buchak et al, 2018;Berg et al, 2020;Bartlett et al, 2021;D'Acunto et al, 2020).…”

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confidence: 99%

Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

Howell¹,

Kuchler²,

Snitkof³

et al. 2021

SSRN Journal

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We explore the sources of racial disparities in small business lending by studying the $806 billion Paycheck Protection Program (PPP), which was designed to support small business jobs during the COVID-19 pandemic. PPP loans were administered by private lenders but federally guaranteed, largely eliminating unobservable credit risk as a factor in explaining differential lending by race. We document that even after controlling for a firm's zip code, industry, loan size, PPP approval date, and other characteristics, Black-owned businesses were 12.1 percentage points (70% of the mean) more likely to obtain their PPP loan from a fintech lender than a traditional bank. Among conventional lenders, smaller banks were much less likely to lend to Black-owned firms, while the Top-4 banks exhibited little to no disparity after including controls. We use novel data to show that the disparity is not primarily explained by differences in pre-existing bank or credit relationships, firm financial positions, fintech affinity, or borrower application behavior. In contrast, we document that Black-owned businesses' higher rate of borrowing from fintechs compared to smaller banks is particularly large in places with high racial animus, pointing to a potential role for discrimination in explaining some of the racial disparities in small business lending. We find evidence that when small banks automate their lending processes, and thus reduce human involvement in the loan origination process, their rate of PPP lending to Blackowned businesses increases, with larger effects in places with more racial animus.

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Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

Howell¹,

Kuchler²,

Snitkof³

et al. 2021

SSRN Journal

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“…The technological factor we examine is the use of purportedly race-blind algorithms known as automated underwriting systems (AUS), which are widely used in the mortgage market. Recent evidence from peer-to-peer and small business credit data suggests that the use of automation, specifically, robo-advising and automatic income verification, might reduce racial disparities (Howell et al, 2023;D'Acunto et al, 2021).…”

mentioning

confidence: 99%

Racial Disparities in the U.S. Mortgage Market

Hurtado,

Sakong

2024

SSRN Journal

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Financial decisions of minorities post-2008

Bonaparte¹,

Khalaf²,

Korniotis³

2023

Journal of Banking & Finance

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How Costly are Cultural Biases?

Cited by 12 publications

References 87 publications

Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

Racial Disparities in Access to Small Business Credit: Evidence from the Paycheck Protection Program

Racial Disparities in the U.S. Mortgage Market

Financial decisions of minorities post-2008

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