Does Rating Information Matter For Bank Lending To SMEs? An Empirical Assessment

49 Pages Posted: 20 Nov 2017 Last revised: 14 Mar 2019

See all articles by Christophe Cahn

Christophe Cahn

Banque de France - Direction des Entreprises

Mattia Girotti

Banque de France

Federica Salvadè

PSB Paris School of Business

Date Written: March 12, 2019

Abstract

We study how third-party credit ratings available to banks influence lending decisions to small- and medium-sized enterprises (SMEs). We exploit a refinement in this rating information, which makes some firms receive a rating surprise. Although this surprise does not alter banks' capital requirements, affected firms experience greater and cheaper access to bank credit, start new bank relationships more easily, and invest more. Banks modify their loan supply more the less they know the borrowers, indicating that banks use ratings to learn about them. We conclude that ratings can be important for SMEs' financing and reduce the informational gap between banks.

Keywords: Credit Ratings, Banks, Lending Technology, SMEs, Corporate Financing.

JEL Classification: G21, G32.

Suggested Citation

Cahn, Christophe and Girotti, Mattia and Salvadè, Federica, Does Rating Information Matter For Bank Lending To SMEs? An Empirical Assessment (March 12, 2019). Available at SSRN: https://ssrn.com/abstract=3072891 or http://dx.doi.org/10.2139/ssrn.3072891

Christophe Cahn

Banque de France - Direction des Entreprises ( email )

39 rue Croix des Petits Champs
Paris Cedex 01 75049
France

Mattia Girotti (Contact Author)

Banque de France ( email )

Paris
France

Federica Salvadè

PSB Paris School of Business ( email )

59 rue Nationale
Paris, 75013
France

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