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A Theory of Discouraged Borrowers
journal contribution
posted on 2023-06-08, 07:26 authored by Y Kon, David StoreyThis paper examines the implications for the SME financing market of Application costs that vary between firms, and of imperfect screening of applicants by Banks. Under these conditions 'Discouraged Borrowers' can exist. These are good borrowers who do not apply for a bank loan because they feel they will be rejected. The paper shows that, under a range of assumptions, the scale of discouragement in an economy depends upon the screening error of the banks, the scale of Application costs and the extent to which the bank interest rate differs from that charged by the moneylender. Discouragement is shown to be at a maximum where there is some, but not perfect, information.
History
Publication status
- Published
Journal
Small Business EconomicsISSN
0921898XExternal DOI
Issue
1Volume
21Page range
37-49Department affiliated with
- Business and Management Publications
Full text available
- No
Peer reviewed?
- Yes
Legacy Posted Date
2012-02-06Usage metrics
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