Document Type

Article

Publication Date

9-2013

Keywords

Stevenson Center, Ordinary Least Squares, Predatory Lending, Social Capital, Alternative Financial Institutions, Community Trust, Econometrics

Abstract

The purpose of this paper is to address a gap in theory pertaining to the relation between payday lending activity in each state and the level of trust and social capital in that state. This research has been motivated by the fact that no study has explicitly looked at the association between predatory financial institutions and the overall level of trust and social capital in a community. Nor has a nation-wide study been done. Multiple years of data is employed in this study to examine both the concentration of payday lenders in each state and the volume of payday activity in relation to trust. Ordinary Least Squares regression analysis was used to test the effect of an increase in the level of trust in each state, which serves as the independent variable of interest, on the level of payday lending activity in each state, which serves as the dependent variable. The contributions of this study include evidence that there is a relationship between both the concentration of payday lenders in each state and trust, as well as the volume of payday activity and trust. This paper may serve as the catalyst for new directions of future research.

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