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New research on financing and loans from Harvard Business School faculty on issues including crowdsourced financing through platforms like Kickstarter, fintech, and how various compensation incentives affect lending decisions among bank loan officers.
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Bankruptcy and the COVID-19 Crisis

by Jialan Wang, Jeyul Yang, Benjamin Iverson, and Ray Kluender

Analyzing the impact of the COVID-19 crisis on bankruptcy filing rates in the United States, this study finds that large businesses, small businesses, and consumers experience very different effects of the crisis.

Weak Credit Covenants

by Victoria Ivashina and Boris Vallée

Prior to the 2020 pandemic, the leveraged loan market experienced an unprecedented boom, which came hand in hand with significant changes in contracting terms. This study presents large-sample evidence of what constitutes contractual weakness from the creditors’ perspective.

Loan Types and the Bank Lending Channel

by Victoria Ivashina, Luc Laeven, and Enrique Moral-Benito

Practitioners commonly refer to four distinct loan types: asset-based loans, cash flow loans, trade financing, and leasing. It is important to account for these differences in loan type in order to analyze the economic significance of credit market disruptions.

Targeting High Ability Entrepreneurs Using Community Information: Mechanism Design in the Field

by Reshmaan Hussam, Natalia Rigol, and Benjamin N. Roth

Based on a field experiment involving 1,345 microentrepreneurs in India, this study provides insight into the depth and breadth of social knowledge contained in rural and peri-urban social networks. Harnessing community information directly from a microentrepreneur’s peers helps to identify high-growth microentrepreneurs and predict their returns to capital.

This Crisis Loan Program Preserved Jobs—and Made Money

by Rachel Layne

Following the 2008 financial crisis, France offered a business loan program that helped firms, employees, and even the government, says Boris Vallee. Open for comment; Comment(s) posted.

Contractual Restrictions and Debt Traps

by Ernest Liu and Benjamin N. Roth

Microfinance has failed to catalyze entrepreneurship in developing countries, despite abundant evidence of high return on investment opportunities. What can account for this? This study presents a theory in which firms that borrow from an informal lender may see their growth stalled and remain in the relationship indefinitely, even though they would have continued to grow in the absence of a lender.

Small Businesses Are Worse Off Than We Thought

by Kristen Senz

A survey of small-business owners shows that lack of liquidity and skepticism of government programs are compounding COVID crisis recovery efforts. Open for comment; Comment(s) posted.

Free Riding in Loan Approvals: Evidence From SME Lending in Peru

by Irani Arraiz, Miriam Bruhn, Benjamin N. Roth, Claudia Ruiz-Ortega, and Rodolfo Stucchi

Using data from a large Peruvian bank trying to expand credit access to small and medium enterprises, this study shows that competing lenders use one another’s loan approvals as an input into their own approval process. Such “free riding” has great impact on market outcomes and might warrant policy intervention.

Fintech's Game-Changing Opportunities for Small Business

by Martha Lagace

In the new book Fintech, Small Business, & the American Dream, Karen Mills describes how technology is opening up new capital for entrepreneurs. Around the corner: The transformative benefits of AI and big data. Open for comment; Comment(s) posted.

'Green Bonds' May Be Our Best Bet for Environmental Damage Control

by Michael Blanding

The popularity of green bonds as a way to finance environmentally friendly projects is on the upswing, say Malcolm Baker and George Serafeim. Open for comment; Comment(s) posted.

Using Fintech to Disrupt Eastern Bank from Within

Re: Karen Mills

When Eastern Bank decided to battle a threat from new competitors, it hired a fintech executive to set up Eastern Labs and start innovating. Karen Mills discusses her case study on what happened next. Open for comment; Comment(s) posted.

The Decline of Big-Bank Lending to Small Business: Dynamic Impacts on Local Credit and Labor Markets

by Brian S. Chen, Samuel G. Hanson, and Jeremy C. Stein

Between 2008 and 2014, the Top 4 banks sharply decreased their lending to small business. This paper examines the lasting economic consequences of this contraction, finding that a credit supply shock from a subset of lenders can have surprisingly long-lived effects on real activity.

Inventory Management for Mobile Money Agents in the Developing World

by Karthik Balasubramanian, David F. Drake, and Douglas Fearing

Mobile money agents in the developing world face a key inventory management challenge: How much cash and e-float should be held to minimize both stockouts and excess working capital? The authors develop two inventory models and show substantial inventory cost reduction with a large dataset of East African mobile money transactions.

The Small Business Administration is a Model for How to Drive Economic Growth

by Karen Mills

Responding to a recent editorial in the Washington Post, Karen Mills argues that the Small Business Administration is an effective public-private partnership model that fuels economic growth, access, and opportunity for all Americans. Open for comment; Comment(s) posted.

Slack Time and Innovation

by Ajay Agrawal, Christian Catalini, Avi Goldfarb, and Hong Luo

This study combines data about projects posted on Kickstarter with the timing of school breaks of top US colleges to find that slack time can lead to an increase in creative projects, particularly those that are relatively complex and high quality. Managers in corporations that emphasize innovation should consider providing their employees with coordinated slack time particularly to advance development of novel ideas.

When Good Incentives Lead to Bad Decisions

by Carmen Nobel

New research by Associate Professor Shawn A. Cole, Martin Kanz, and Leora Klapper explores how various compensation incentives affect lending decisions among bank loan officers. They find that incentives have the power to change not only how we make decisions, but how we perceive reality. Closed for comment; 10 Comment(s) posted.

When Founders Recruit Friends and Family as Investors

by Noam Wasserman

In his new book, The Founder's Dilemmas: Anticipating and Avoiding the Pitfalls That Can Sink a Startup, HBS Associate Professor Noam Wasserman tells readers how to anticipate, avoid, and, if necessary, recover from the landmines that can destroy a nascent company before it has the chance to thrive. In this excerpt, he discusses the pros and cons of recruiting friends and family members as investors. Open for comment; 7 Comment(s) posted.