Are Good or Bad Borrowers Discourages From Applying for Loans? Evidence from US Small Business Credit Markets

Han, Liang and Fraser, Stuart and Storey, David J (2009) Are Good or Bad Borrowers Discourages From Applying for Loans? Evidence from US Small Business Credit Markets. Journal of Banking and Finance, 33 (2). pp. 415-424.

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Abstract

This paper takes the concept of a discouraged borrower originally formulated by Kon and Storey [Kon, Y., Storey, D.J., 2003. A theory of discouraged borrowers. Small Business Economics 21, 37–49] and examines whether discouragement is an efficient self-rationing mechanism. Using US data it finds riskier borrowers have higher probabilities of discouragement, which increase with longer financial relationships, suggesting discouragement is an efficient self-rationing mechanism. It also finds low risk borrowers are less likely to be discouraged in concentrated markets than in competitive markets and that, in concentrated markets, high risk borrowers are more likely to be discouraged the longer their financial relationships. We conclude discouragement is more efficient in concentrated, than in competitive, markets.

Item Type: Article
Uncontrolled Keywords: Discouraged borrowers; Self-rationing; Information problem
Subjects: H Social Sciences > H Social Sciences (General)
H Social Sciences > HG Finance
Divisions: Schools and Research Institutes > Business School > Business and Human Resource Management
Research Priority Areas: Applied Business Research
Depositing User: Ineke Tijsma
Date Deposited: 25 Mar 2015 15:52
Last Modified: 25 Mar 2015 15:52
URI: http://eprints.glos.ac.uk/id/eprint/1530

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