Investing in Lending Technology: IT Spending in Banking

68 Pages Posted: 6 Oct 2021 Last revised: 22 Aug 2022

See all articles by Zhiguo He

Zhiguo He

Stanford University - Knight Management Center

Sheila Jiang

University of Florida - Department of Finance, Insurance and Real Estate

Douglas Xu

University of Florida - Warrington College of Business Administration

Xiao Yin

University College London

Multiple version iconThere are 2 versions of this paper

Date Written: October 5, 2021

Abstract

This paper studies the economics behind the investment in information technologies
(IT) by U.S. commercial banks in the past decade. By linking banks’ IT spending to
their lending technologies, we analyze the distinctive natures of banks’ dealings with
information across various lending activities. Investment in communication IT is shown
to be associated more with improving banks’ ability of soft information production and
transmission, while investment in software IT helps enhance banks’ hard information
processing capacity. We exploit polices that affect geographic regions differentially to
show causally that banks respond to an increased demand for small business credit
(mortgage refinance) by increasing their spending on communication (software) IT
spending. We also find that the entry of fintech induces commercial banks to increase
their investment in IT—more so in the software IT category.

Keywords: Information Technology, Small Business Lending, Mortgage Refinance, Communication Equipment, Software, Hard and Soft Information

JEL Classification: G21, G51, J24, O32

Suggested Citation

He, Zhiguo and Jiang, Sheila and Xu, Douglas and Yin, Xiao, Investing in Lending Technology: IT Spending in Banking (October 5, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2021-116, Available at SSRN: https://ssrn.com/abstract=3936767 or http://dx.doi.org/10.2139/ssrn.3936767

Zhiguo He (Contact Author)

Stanford University - Knight Management Center ( email )

655 Knight Way
Stanford, CA 94305-7298
United States

Sheila Jiang

University of Florida - Department of Finance, Insurance and Real Estate ( email )

P.O. Box 117168
Gainesville, FL 32611
United States

Douglas Xu

University of Florida - Warrington College of Business Administration ( email )

Gainesville, FL 32611
United States

Xiao Yin

University College London ( email )

Gower Street
London, WC1E 6BT
United Kingdom

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