Are good or bad borrowers discouraged from applying for loans? Evidence from US small business credit markets

Han, Liang, Fraser, Stuart and Storey, David J (2009) Are good or bad borrowers discouraged from applying for loans? Evidence from US small business credit markets. Journal of Banking and Finance, 33 (2). pp. 415-424. ISSN 03784266

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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
Schools and Departments: School of Business, Management and Economics > Business and Management
Depositing User: David Storey
Date Deposited: 06 Feb 2012 18:33
Last Modified: 01 Nov 2012 13:04
URI: http://sro.sussex.ac.uk/id/eprint/17127
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