Differentiated Use of Small Business Credit Scoring by Relationship Lenders and Transactional Lenders : Evidence from Firm-Bank Matched Data in Japan

This paper examines the ex-post performance of small and medium enterprises (SMEs) that obtained small business credit scoring (SBCS) loans by using a unique Japanese firm-bank matched dataset. The ex-post probability of default after the SBCS loan was provided significantly increased for SMEs that obtained an SBCS loan from a transactional lender. Also, the lending attitude of relationship lenders during the recent global financial crisis was more severe if a transactional lender had extended an SBCS loan to a firm. These findings suggest that SBCS loans by a transactional lender are more prone to type II errors and detrimental to a relationship lender’s incentive to provide “liquidity insurance”