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Assessing the Profitability and Riskiness of Small Business Lenders in the Banking Industry

Assessing the Profitability and Riskiness of Small Business Lenders in the Banking Industry

Two alternatives research hypotheses concerning how small business lending affects bank profitability are tested. The specialization hypothesis argues for higher profitability than other banks due to increased focus on small business lending, whereas the diversification hypothesis asserts that small business lenders' profitability will be lower than other more diversified banks. Using the rate of return on assets as the profit measure, we find...

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