Are good or bad borrowers discouraged from applying for loans? Evidence from US small business credit markets

Han, Liang; Fraser, Stuart; Storey, David

doi:10.1016/j.jbankfin.2008.08.014

Cited by 149 publications

(132 citation statements)

References 23 publications

Supporting

Mentioning

112

Contrasting

Unclassified

Order By: Relevance

“…This reflects a general trend, with applications also slightly higher for non-innovative firms (from 23 to 25 per cent). Research suggests that riskier firms may be discouraged from applying for finance in some circumstances (Han et al 2009). Overall, the results here suggest this innovative firms were not discouraged from applying for finance and are not consistent with the view that innovative firms are particularly likely to be discouraged.…”

Section: Bivariate Results: Access To Financementioning

confidence: 99%

Access to finance for innovative SMEs since the financial crisis

2015

View full text Add to dashboard Cite

In the wake of the 2008 financial crisis, there has been increased focus on access to finance for small and medium sized firms. Some evidence from before the crisis suggested that it was harder for innovative firms to access finance. Yet no research has considered the differential effect of the crisis on innovative firms. This paper addresses this gap using a dataset of over 10,000 UK SME employers. We find that innovative firms are more likely to be turned down for finance than other firms, and this worsened significantly in the crisis. However, regressions controlling for a host of firm characteristics show that the worsening in general credit conditions has been more pronounced for non-innovative firms with the exception of absolute credit rationing which still remains more severe for innovative firms. The results suggest that there are two issues in the financial system. First, we find evidence of a structural problem which restricts access to finance for innovative firms. Second, we show a cyclical problem has been caused by the financial crisis and impacted relatively more severely on noninnovative firms.

show abstract

Section: Bivariate Results: Access To Financementioning

confidence: 99%

Access to finance for innovative SMEs since the financial crisis

2015

View full text Add to dashboard Cite

show abstract

“…Though the current data cannot address this, future research may look at, for example, credit scoring discouraged borrowers to ascertain whether they are inappropriately or appropriately discouraged. A recent attempt to this end was made by Han et al (2009). These authors use the 1998 US Survey of Small Business Finances to model discouragement.…”

Section: Discussionmentioning

confidence: 99%

The latent demand for bank debt: characterizing “discouraged borrowers”

et al. 2010

View full text Add to dashboard Cite

Concerns that small firms encounter credit constraints are well entrenched in the literature, despite widespread empirical evidence that a relatively small proportion of small firms have their loan applications rejected. However, many firms may be discouraged from applying for fear of rejection. These businesses are the focus of this paper. Based on responses to a large-scale postal survey of UK small and mediumsized enterprises (SMEs), we find that twice as many businesses were discouraged from applying for a bank loan than had their loan request denied. More particularly, we observe a number of distinguishing characteristics of ''discouraged borrowers'' (relative to applicants). These include: strategy, sector, prior entrepreneurial experience and banking relationships. The implications of our findings for policy and future research are briefly discussed.

show abstract

“…Kon and Storey (2003) develop a theory that predicts that good and bad borrowers can become discouraged due to information asymmetry and application costs. Empirical studies have examined discouragement in the case of bank loan applications (Levenson and Willard 2000;Han et al 2009;Freel et al 2012;Chakravarty and Xiang 2013). To assess the role of discouragement, we use the definition of Freel et al (2012, p. 400): B… firms that chose not to apply for fear of rejection^.…”

Section: Additional Analysesmentioning

confidence: 99%