Got Rejected? Real Effects of Not Getting a Loan
Review of Financial Studies, Forthcoming
72 Pages Posted: 23 Apr 2018
Date Written: April 4, 2018
Using a lender cutoff rule that generates plausibly exogenous variation in credit supply, I investigate a new channel through which funding shocks are transmitted to the real economy. Based on a sample of more than 15,000 loan applications from small- and medium-sized enterprises, I find that precautionary savings motives can aggravate real effects: low-liquidity firms whose loan applications were rejected increase cash holdings and cut noncash 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, cash holdings, real effects, SMEs, precautionary savings
JEL Classification: G21, G32, J23
Suggested Citation: Suggested Citation