Advanced Search
MyIDEAS: Login

Do Banks Ration Credit to New Enterprises? And Should Governments Intervene? President's Lecture Delivered at the Annual General Meeting of the Scottish Economic Society 4-5 September 2001

Contents:

Author Info

  • Parker, Simon C

Abstract

Do banks deny credit to new start-ups? The presumption that they do has motivated government intervention in several forms, including publicly backed loan guarantee schemes in the UK and elsewhere. This paper presents an overview of the modern theory and evidence of credit rationing, and concludes that the case for credit rationing is weak. Ultimately, theoretical arguments for or against credit rationing are inconclusive, so evidence is needed to decide the issue. The evidence is not supportive of the view that credit rationing is an important or widespread phenomenon. Copyright 2002 by Scottish Economic Society.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.blackwell-synergy.com/servlet/useragent?func=synergy&synergyAction=showTOC&journalCode=sjpe&volume=49&issue=2&year=2002&part=null
File Function: link to full text
Download Restriction: Access to full text is restricted to subscribers.

As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.

Bibliographic Info

Article provided by Scottish Economic Society in its journal Scottish Journal of Political Economy.

Volume (Year): 49 (2002)
Issue (Month): 2 (May)
Pages: 162-95

as in new window
Handle: RePEc:bla:scotjp:v:49:y:2002:i:2:p:162-95

Contact details of provider:
Web page: http://www.blackwellpublishing.com/journal.asp?ref=0036-9292
More information through EDIRC

Order Information:
Web: http://www.blackwellpublishing.com/subs.asp?ref=0036-9292

Related research

Keywords:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Innes, Robert, 1991. "Investment and government intervention in credit markets when there is asymmetric information," Journal of Public Economics, Elsevier, vol. 46(3), pages 347-381, December.
  2. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
  3. Levenson, Alec R & Willard, Kristen L, 2000. " Do Firms Get the Financing They Want? Measuring Credit Rationing Experienced by Small Business in the U.S," Small Business Economics, Springer, vol. 14(2), pages 83-94, March.
  4. de Meza, David & Southey, Clive, 1996. "The Borrower's Curse: Optimism, Finance and Entrepreneurship," Economic Journal, Royal Economic Society, vol. 106(435), pages 375-86, March.
  5. Blanchflower, D.G. & Oswald, A., 1991. "What Makes an Entrepreneur?," Economics Series Working Papers 99125, University of Oxford, Department of Economics.
  6. Biais, Bruno & Gollier, Christian, 1997. "Trade Credit and Credit Rationing," Review of Financial Studies, Society for Financial Studies, vol. 10(4), pages 903-37.
  7. Orgler, Yair E, 1970. "A Credit Scoring Model for Commercial Loans," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 2(4), pages 435-45, November.
  8. Allen N. Berger & Gregory F. Udell, 1990. "Some evidence on the empirical significance of credit rationing," Finance and Economics Discussion Series 105, Board of Governors of the Federal Reserve System (U.S.).
  9. Basu, Anuradha & Parker, Simon C, 2001. " Family Finance and New Business Start-Ups," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 63(3), pages 333-58, July.
  10. Burke, Andrew E & FitzRoy, Felix R & Nolan, Michael A, 2000. " When Less Is More: Distinguishing between Entrepreneurial Choice and Performance," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(5), pages 565-87, December.
  11. Coco, Giuseppe, 2000. " On the Use of Collateral," Journal of Economic Surveys, Wiley Blackwell, vol. 14(2), pages 191-214, April.
  12. Cowling, Marc & Mitchell, Peter, 1997. "The Evolution of U.K. Self-Employment: A Study of Government Policy and the Role of the Macroeconomy," The Manchester School of Economic & Social Studies, University of Manchester, vol. 65(4), pages 427-42, September.
  13. Ghatak, Maitreesh, 1999. "Group lending, local information and peer selection," Journal of Development Economics, Elsevier, vol. 60(1), pages 27-50, October.
  14. Guiso, Luigi, 1998. "High-tech firms and credit rationing," Journal of Economic Behavior & Organization, Elsevier, vol. 35(1), pages 39-59, March.
  15. Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
  16. Fried, Joel & Howitt, Peter, 1980. "Credit Rationing and Implicit Contract Theory," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 12(3), pages 471-87, August.
  17. Holtz-Eakin, Douglas & Joulfaian, David & Rosen, Harvey S, 1994. "Sticking It Out: Entrepreneurial Survival and Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 102(1), pages 53-75, February.
  18. Stiglitz, Joseph E & Weiss, Andrew, 1992. "Asymmetric Information in Credit Markets and Its Implications for Macro-economics," Oxford Economic Papers, Oxford University Press, vol. 44(4), pages 694-724, October.
  19. Stiglitz, Joseph E & Weiss, Andrew, 1983. "Incentive Effects of Terminations: Applications to the Credit and Labor Markets," American Economic Review, American Economic Association, vol. 73(5), pages 912-27, December.
  20. Berger, Allen N. & Udell, Gregory F., 1990. "Collateral, loan quality and bank risk," Journal of Monetary Economics, Elsevier, vol. 25(1), pages 21-42, January.
  21. Jaffee, Dwight M & Modigliani, Franco, 1969. "A Theory and Test of Credit Rationing," American Economic Review, American Economic Association, vol. 59(5), pages 850-72, December.
  22. Dunn, Thomas & Holtz-Eakin, Douglas, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment: Evidence from Intergenerational Links," Journal of Labor Economics, University of Chicago Press, vol. 18(2), pages 282-305, April.
  23. Taylor, Mark P., 1994. "Earnings, independence or unemployment: why become self -employed?," ISER Working Paper Series 26, Institute for Social and Economic Research.
  24. Webb, David C, 1991. "Long-term Financial Contracts Can Mitigate the Adverse Selection Problem in Project Financing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 32(2), pages 305-20, May.
  25. Besanko, David & Thakor, Anjan V, 1987. "Collateral and Rationing: Sorting Equilibria in Monopolistic and Competitive Credit Markets," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 28(3), pages 671-89, October.
  26. Laffont, Jean-Jacques & Garcia, Rene, 1977. "Disequilibrium Econometrics for Business Loans," Econometrica, Econometric Society, vol. 45(5), pages 1187-1204, July.
  27. Hellmann, Thomas & Stiglitz, Joseph, 2000. "Credit and equity rationing in markets with adverse selection," European Economic Review, Elsevier, vol. 44(2), pages 281-304, February.
  28. Ordover, Janusz & Weiss, Andrew, 1981. "Information and the Law: Evaluating Legal Restrictions on Competitive Contracts," American Economic Review, American Economic Association, vol. 71(2), pages 399-404, May.
  29. David Besanko & Anjan V. Thakor, 2004. "Competitive Equilibrium in the Credit Market under Asymmetric Information," Finance 0411045, EconWPA.
  30. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
  31. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc.
  32. Sofianos, George & Wachtel, Paul & Melnik, Arie, 1990. "Loan commitments and monetary policy," Journal of Banking & Finance, Elsevier, vol. 14(4), pages 677-689, October.
  33. Gray, Jo Anna & Wu, Ying, 1995. "On equilibrium credit rationing and interest rates," Journal of Macroeconomics, Elsevier, vol. 17(3), pages 405-420.
  34. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-81, July.
  35. Hillier, Brian & Ibrahimo, M V, 1993. "Asymmetric Information and Models of Credit Rationing," Bulletin of Economic Research, Wiley Blackwell, vol. 45(4), pages 271-304, October.
  36. Myers, Stewart C. & Majluf, Nicolás S., 1945-, 1984. "Corporate financing and investment decisions when firms have information that investors do not have," Working papers 1523-84., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  37. Blanchflower, David G. & Oswald, Andrew & Stutzer, Alois, 2001. "Latent entrepreneurship across nations," European Economic Review, Elsevier, vol. 45(4-6), pages 680-691, May.
  38. Williamson, Stephen D, 1987. "Costly Monitoring, Loan Contracts, and Equilibrium Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 102(1), pages 135-45, February.
  39. de Mesa, David & Webb, David C., 1992. "Efficient credit rationing," European Economic Review, Elsevier, vol. 36(6), pages 1277-1290, August.
  40. Steven Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," NBER Working Papers 2387, National Bureau of Economic Research, Inc.
  41. Thomas Dunn & Douglas Holtz-Eakin, 2000. "Financial Capital, Human Capital, and the Transition to Self-Employment:Evidence from Intergenerational Links," NBER Working Papers 5622, National Bureau of Economic Research, Inc.
  42. Xu, Bin, 2000. "The Welfare Implications of Costly Monitoring in the Credit Market: A Note," Economic Journal, Royal Economic Society, vol. 110(463), pages 576-80, April.
  43. N. Gregory Mankiw, 1986. "The Allocation of Credit and Financial Collapse," NBER Working Papers 1786, National Bureau of Economic Research, Inc.
  44. Greenwald, Bruce & Stiglitz, Joseph E & Weiss, Andrew, 1984. "Informational Imperfections in the Capital Market and Macroeconomic Fluctuations," American Economic Review, American Economic Association, vol. 74(2), pages 194-99, May.
  45. Hillier, Brian, 1998. "The Borrwer's Curse: Comment," Economic Journal, Royal Economic Society, vol. 108(451), pages 1772-74, November.
  46. Cukierman, Alex, 1978. "The Horizontal Integration of the Banking Firm, Credit Rationing and Monetary Policy," Review of Economic Studies, Wiley Blackwell, vol. 45(1), pages 165-78, February.
  47. Christophe Chamley, 1981. "Entrepreneurial Abilities and Liabilities in a Model of Self-Selection," Cowles Foundation Discussion Papers 580, Cowles Foundation for Research in Economics, Yale University.
  48. Hayne E. Leland and David H. Pyle., 1976. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Research Program in Finance Working Papers 41, University of California at Berkeley.
  49. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-27, August.
  50. Coco, Guiseppe, 1997. "Collateral, Heterogeneity in Risk Attitude and the Credit Market Equilibrium," Discussion Papers 9702, Exeter University, Department of Economics.
  51. Hellmuth Milde & John G. Riley, 1986. "Signalling in Credit Markets," UCLA Economics Working Papers 334, UCLA Department of Economics.
  52. Thakor, Anjan V. & Callaway, Richard, 1983. "Costly Information Production Equilibria in the Bank Credit Market with Applications to Credit Rationing," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 18(02), pages 229-256, June.
  53. Hillier, Brian & Worrall, Tim, 1994. "The Welfare Implications of Costly Monitoring in Credit Market," Economic Journal, Royal Economic Society, vol. 104(423), pages 350-62, March.
  54. Perez, Stephen J., 1998. "Testing for Credit Rationing: An Application of Disequilibrium Econometrics," Journal of Macroeconomics, Elsevier, vol. 20(4), pages 721-739, October.
  55. Marc Cowling, 1999. "The incidence of loan collateralization in small business lending contracts: evidence from the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 6(5), pages 291-293.
  56. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
  57. Van Tassel, Eric, 1999. "Group lending under asymmetric information," Journal of Development Economics, Elsevier, vol. 60(1), pages 3-25, October.
  58. Barro, Robert J, 1976. "The Loan Market, Collateral, and Rates of Interest," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 8(4), pages 439-56, November.
  59. Kochar, Anjini, 1997. "An empirical investigation of rationing constraints in rural credit markets in India," Journal of Development Economics, Elsevier, vol. 53(2), pages 339-371, August.
  60. Jaffee, Dwight M & Russell, Thomas, 1976. "Imperfect Information, Uncertainty, and Credit Rationing," The Quarterly Journal of Economics, MIT Press, vol. 90(4), pages 651-66, November.
  61. Bruce D. Smith & Michael J. Stutzer, 1989. "Credit Rationing and Government Loan Programs: A Welfare Analysis," Real Estate Economics, American Real Estate and Urban Economics Association, vol. 17(2), pages 177-193.
  62. Cressy, Robert, 2000. "Credit rationing or entrepreneurial risk aversion? An alternative explanation for the Evans and Jovanovic finding," Economics Letters, Elsevier, vol. 66(2), pages 235-240, February.
  63. William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics.
  64. Johansson, Edvard, 2000. " Self-Employment and Liquidity Constraints: Evidence from Finland," Scandinavian Journal of Economics, Wiley Blackwell, vol. 102(1), pages 123-34, March.
  65. Brian Hillier & M.V. Ibrahimo, 1992. "The Performance of Credit Markets under Asymmetric Information about Project Means and Variances," Journal of Economic Studies, Emerald Group Publishing, vol. 19(3), pages 3-17, September.
  66. Leeth, John D. & Scott, Jonathan A., 1989. "The Incidence of Secured Debt: Evidence from the Small Business Community," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(03), pages 379-394, September.
  67. Chan, Yuk-Shee & Thakor, Anjan V, 1987. " Collateral and Competitive Equilibria with Moral Hazard and Private Information," Journal of Finance, American Finance Association, vol. 42(2), pages 345-63, June.
  68. de Meza, David & Webb, David, 1990. "Risk, Adverse Selection and Capital Market Failure," Economic Journal, Royal Economic Society, vol. 100(399), pages 206-14, March.
  69. Ito, Takatoshi & Ueda, Kazuo, 1981. "Tests of the Equilibrium Hypothesis in Disequilibrium Econometrics: An International Comparison of Credit Rationing," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 22(3), pages 691-708, October.
  70. Ghatak, Maitreesh, 2000. "Screening by the Company You Keep: Joint Liability Lending and the Peer Selection Effect," Economic Journal, Royal Economic Society, vol. 110(465), pages 601-31, July.
  71. Lindh, Thomas & Ohlsson, Henry, 1996. "Self-Employment and Windfall Gains: Evidence from the Swedish Lottery," Economic Journal, Royal Economic Society, vol. 106(439), pages 1515-26, November.
  72. Bester, Helmut, 1985. "Screening vs. Rationing in Credit Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 75(4), pages 850-55, September.
  73. de Meza, David & Webb, David, 1999. "Wealth, Enterprise and Credit Policy," Economic Journal, Royal Economic Society, vol. 109(455), pages 153-63, April.
  74. King, Stephen R, 1986. "Monetary Transmission: Through Bank Loans or Bank Liabilities?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 18(3), pages 290-303, August.
  75. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March.
  76. Gerhard Clemenz & Mona Ritthaler, 1992. "Credit markets with asymmetric information : a survey," Finnish Economic Papers, Finnish Economic Association, vol. 5(1), pages 12-26, Spring.
  77. Boot, Arnoud W A & Thakor, Anjan V, 1994. "Moral Hazard and Secured Lending in an Infinitely Repeated Credit Market Game," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(4), pages 899-920, November.
  78. Black, Jane & de Meza, David & Jeffreys, David, 1996. "House Price, the Supply of Collateral and the Enterprise Economy," Economic Journal, Royal Economic Society, vol. 106(434), pages 60-75, January.
  79. Sealey, C W, Jr, 1979. "Credit Rationing in the Commercial Loan Market: Estimates of a Structural Model under Conditions of Disequilibrium," Journal of Finance, American Finance Association, vol. 34(3), pages 689-702, June.
  80. Quadrini, Vincenzo, 1999. "The Importance of Entrepreneurship for Wealth Concentration and Mobility," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 45(1), pages 1-19, March.
  81. de Meza, David & Webb, David, 2000. "Does credit rationing imply insufficient lending?," Journal of Public Economics, Elsevier, vol. 78(3), pages 215-234, November.
  82. Kugler, Peter, 1987. "Credit rationing and the adjustment of the loan rate: An empirical investigation," Journal of Macroeconomics, Elsevier, vol. 9(4), pages 505-525.
  83. de Aghion, Beatriz Armendariz & Gollier, Christian, 2000. "Peer Group Formation in an Adverse Selection Model," Economic Journal, Royal Economic Society, vol. 110(465), pages 632-43, July.
  84. Harris, Duane G, 1974. "Credit Rationing at Commercial Banks: Some Empirical Evidence," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 6(2), pages 227-40, May.
  85. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Concepción Román & Emilio Congregado & José Millán, 2011. "Dependent self-employment as a way to evade employment protection legislation," Small Business Economics, Springer, vol. 37(3), pages 363-392, October.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:bla:scotjp:v:49:y:2002:i:2:p:162-95. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Wiley-Blackwell Digital Licensing) or (Christopher F. Baum).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.