Got Rejected? Real Effects of Not Getting a Loan
50 Pages Posted: 19 Sep 2016
Date Written: September 16, 2016
Using a lender cut-off rule that generates plausibly exogenous variation in credit supply, I analyze real effects of loan rejections in a sample of small and medium-sized enterprises. I find that loan rejections reduce asset growth, investments, and employment, and these effects are concentrated among low liquidity firms. Precautionary savings motives aggravate real effects: firms whose loan applications got rejected increase cash holdings and cut non-cash assets in excess of the requested loan amount. These results point to the amplifying effect of precautionary savings motives in the transmission of credit supply shocks.
Keywords: Credit supply, real effects, liquidity demand, precautionary savings
JEL Classification: G21, G32, J23
Suggested Citation: Suggested Citation