Credit Rationing in Small Firm-Bank Relationships
55 Pages Posted: 15 Mar 2011 Last revised: 22 Feb 2016
Date Written: October 22, 2015
I study credit rationing in small firm bank relationships by using a unique data set of matched loan applications and contracts. I establish the degree of credit rationing by relating a firm’s requested loan amount to the bank’s granted amount. In line with theoretical predictions, credit rationing is higher for opaque than transparent firms at the beginning of their bank relationships and decreases over time for both. After testing for several alternative explanations, the results suggest that information and incentive problems explain the observed credit rationing and its dynamics.
Keywords: Credit rationing, loan applications, small firm lending, asymmetric information
JEL Classification: D82, G20, G21, G30
Suggested Citation: Suggested Citation