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© 2021 International Monetary Fund
WP/21/214
IMF Working Paper
Western Hemisphere Department
Does IT Help? Information Technology in Banking and Entrepreneurship
Prepared by Toni Ahnert, Sebastian Doerr, Nicola Pierri and Yannick Timmer
Authorized for distribution by Nigel Chalk
August 2021
IMF Working Papers describe research in progress by the author(s) and are published to elicit comments and to encourage debate. The views expressed in IMF Working Papers are those of the author(s) and do not necessarily represent the views of the IMF, its Executive Board, or IMF management.
Abstract
This paper analyzes the importance of information technology (IT) in banking for entrepreneurship. To guide our empirical analysis, we build a parsimonious model of bank screening and lending that predicts that IT in banking can spur entrepreneurship by making it easier for startups to borrow against collateral. We provide empirical evidence that job creation by young firms is stronger in US counties that are more exposed to IT-intensive banks. Consistent with a strengthened collateral lending channel for IT banks, entrepreneurship increases more in IT-exposed counties when house prices rise. In line with the model’s implications, IT in banking increases startup activity without diminishing startup quality and it also weakens the importance of geographical distance between borrowers and lenders. These results suggest that banks’ IT adoption can increase dynamism and productivity.
JEL Classification Numbers: G21, G14, E44, D82, D83
Keywords: technology in banking, entrepreneurship, information technology, collateral, screening.
Authors’ E-Mail Addresses: [tahnert@bankofcanada.ca; sebastian.doerr@bis.org; npierri@imf.org; ytimmer@imf.org]
Title Page
Does IT help?
Information Technology in Banking and Entrepreneurship
Toni Ahnert* Sebastian Doerr†Nicola Pierri‡ Yannick Timmer§
July 2021
Abstract
This paper analyzes the importance of information technology (IT) in banking for entrepreneurship. To guide our empirical analysis, we build a parsimonious model of bank screening and lending that predicts that IT in banking can spur entrepreneurship by making it easier for startups to borrow against collateral. We provide empirical evidence that job creation by young firms is stronger in US counties that are more exposed to IT-intensive banks. Consistent with a strengthened collateral lending channel for IT banks, entrepreneur-ship increases more in IT-exposed counties when house prices rise. In line with the model’s implications, IT in banking increases startup activity without diminishing startup quality and it also weakens the importance of geographical distance between borrowers and lenders. These results suggest that banks’ IT adoption can increase dynamism and productivity.
JEL classification: G21, G14, E44, D82, D83.
Keywords: technology in banking, entrepreneurship, information technology, collateral, screening.
Bank of Canada and CEPR. Email: tahnert@bankofcanada.ca.
Bank for International Settlements. Email: sebastian.doerr@bis.org.
International Monetary Fund. Email: npierri@imf.org.
International Monetary Fund. Email: ytimmer@imf.org.