What Discourages Small Businesses from Asking for Loans? The International Evidence on Borrower Discouragement

39 Pages Posted: 16 Feb 2009

See all articles by Sugato Chakravarty

Sugato Chakravarty

Purdue University

Meifang Xiang

University of Wisconsin - Whitewater

Date Written: February 15, 2009

Abstract

We use a unique firm-level survey database compiled by the World Bank in order to examine the drivers of discouraged small businesses in various developing economies around the world. We find that the level of competition and the relationships of the firms with banks and other financial institutions have a significant impact on the probability of a firm in being discouraged. We confirm that older, or larger, firms are less likely to be discouraged and that firm size is the main characteristic associated with the probability of a firm being discouraged for firms operating in relatively developed economies. By contrast, for firms in relatively underdeveloped economies, factors other than firm size are also significant drivers of firm discouragement. These include firm age, a firm's relationships with banks and other financial institutions, the level of competition it faces and its financial status. Further analysis on the joint effect of firm size and the developmental status of the country it operates in suggests that either small firms or firms operating in relatively underdeveloped economies, that have stronger relationships with their financial institutions, are less likely to be discouraged.

Keywords: discouraged firms, emerging market

JEL Classification: E5, G30, O57

Suggested Citation

Chakravarty, Sugato and Xiang, Meifang, What Discourages Small Businesses from Asking for Loans? The International Evidence on Borrower Discouragement (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1344098 or http://dx.doi.org/10.2139/ssrn.1344098

Sugato Chakravarty (Contact Author)

Purdue University ( email )

Consumer Sciences
1262 Matthews Hall Rm 214F
West Lafayette, IN 47906
United States
765-494-6427 (Phone)
765-494-0869 (Fax)

HOME PAGE: http://web.ics.purdue.edu/~sugato

Meifang Xiang

University of Wisconsin - Whitewater ( email )

Whitewater, WI 53190
United States
262-472-4912 (Phone)
262-472-5499 (Fax)

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