How Do Banks Assess Entrepreneurial Competence? The Role of Voluntary Information Disclosure

International Small Business Journal, 32(5), 525-544, 2014

53 Pages Posted: 7 Jun 2015

See all articles by Andrea Moro

Andrea Moro

Cranfield University - School of Management

Matthias Fink

Vienna University of Economics and Business; Anglia Ruskin University

Teemu Kautonen

Aalto University School of Business; Anglia Ruskin University

Date Written: 2012

Abstract

This research adds to the literature on relationship lending in the small business context by discussing the roles of entrepreneurial competence and voluntarily disclosed information as determinants of credit access. More specifically, we propose that the loan manager’s evaluation of the information voluntarily disclosed by the entrepreneur is an important complement to publicly available financial data and soft information collected through observation and third parties in framing the loan manager’s perception of the entrepreneur’s competence. Further, we argue that banks charge lower interest rates if the loan manager perceives the entrepreneur to be competent. Econometric analysis based on 433 bank-firm relationships supports these hypothesised relationships. The results imply that entrepreneurs need to communicate their competence effectively to loan managers, and that banks should utilise their loan managers’ personal evaluations as inputs to lending decisions.

Keywords: small and medium enterprises, competence, interest rate, banks, finance, trust

Suggested Citation

Moro, Andrea and Fink, Matthias and Kautonen, Teemu, How Do Banks Assess Entrepreneurial Competence? The Role of Voluntary Information Disclosure (2012). International Small Business Journal, 32(5), 525-544, 2014, Available at SSRN: https://ssrn.com/abstract=2615277

Andrea Moro (Contact Author)

Cranfield University - School of Management ( email )

Bedfordshire, MK43 0AL
United Kingdom

Matthias Fink

Vienna University of Economics and Business

Welthandelsplatz 1
Vienna, Wien 1020
Austria

Anglia Ruskin University ( email )

East Road
Cambridge CB1 1PT
United Kingdom

Teemu Kautonen

Aalto University School of Business ( email )

P.O. Box 21210
AALTO, FI-00076
Finland

Anglia Ruskin University ( email )

East Road
Cambridge CB1 1PT
United Kingdom

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