Entrepreneurial Optimism, Credit Availability, and Cost of Financing: Evidence from U.S. Small Businesses
State University of New York at Albany - School of Business & Center for Institutional Investment Management
Vladimir I. Ivanov
US Securities & Exchange Commission
June 21, 2010
Does entrepreneurial optimism affect the financing decisions? Do financiers have better knowledge of entrepreneurs’ unrealistic optimism and curtail lending to them? Using a large sample of U.S. small businesses and a new measure of optimism, we find that more optimistic entrepreneurs tend to use more short-term debt. We do not find evidence that banks curtail lending to more optimistic entrepreneurs. In fact, banks are more likely to approve loan applications by optimistic entrepreneurs, they do not charge an interest premium, and do not require more collateral. Our results are robust to alternative measures of optimism, alternative samples, and controls for private information.
Number of Pages in PDF File: 55
Keywords: Optimism, Small Business Financing, Credit Availability, Capital Structure
JEL Classification: G32, M13
Date posted: July 25, 2009 ; Last revised: June 22, 2010
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