Information Technology in Banking and Entrepreneurship.

This article examines the impact of information technology (IT) adoption by banks on entrepreneurship in U.S. counties, focusing on how IT influences lending to young firms through collateral channels. Using a parsimonious theoretical model and extensive empirical analysis from 1999 to 2007, the study finds that counties with greater exposure to banks with higher IT adoption experience stronger job creation by startups, particularly in industries more dependent on external finance. The evidence suggests that IT enhances banks' ability to assess and transmit collateral values—especially real estate—reducing the cost and time of disbursing secured loans, which facilitates lending to young firms without compromising startup quality. Instrumental variable analysis leveraging the proximity of banks' headquarters to land-grant colleges supports the causal interpretation of IT adoption's positive effect on small business lending and entrepreneurship. The findings highlight the role of banks' IT in easing financial constraints for entrepreneurs by improving collateralized lending, with implications for financial technology's influence on economic growth and job creation.