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Author Info
David de Meza (London School of Economics & University of Exeter)

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Abstract

A mass of evidence suggests that aspiring entrepreneurs with low net worth or from disadvantaged social groups are excluded from capital markets. Asymmetric information potentially explains these findings, though whether aggregate lending is raised or lowered relative to the full information outcome is ambiguous. Whichever case occurs, subsidising credit may decrease efficiency. This is all the more true when, as the evidence suggests, potential entrepreneurs are prone to unrealistic optimism. Indeed, even though optimism may cause redlining and credit rationing and so lower lending, the case for policies to encourage lending is further undermined. Copyright Royal Economic Society 2002

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Article provided by Royal Economic Society in its journal The Economic Journal.

Volume (Year): 112 (2002)
Issue (Month): 477 (February)
Pages: F17-F31
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Handle: RePEc:ecj:econjl:v:112:y:2002:i:477:p:f17-f31

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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.:
  1. Gale, William G., 1990. "Federal lending and the market for credit," Journal of Public Economics, Elsevier, vol. 42(2), pages 177-193, July. [Downloadable!] (restricted)
  2. William G. Gale, 1990. "Collateral, Rationing, and Government Intervention in Credit Markets," NBER Chapters, in: Asymmetric Information, Corporate Finance, and Investment, pages 43-62 National Bureau of Economic Research, Inc. [Downloadable!]
    Other versions:
  3. Michael Manove & A. Jorge Padilla, 1999. "Banking (Conservatively) with Optimists," RAND Journal of Economics, The RAND Corporation, vol. 30(2), pages 324-350, Summer. [Downloadable!] (restricted)
    Other versions:
  4. Reid, Gavin C., 1991. "Staying in business," International Journal of Industrial Organization, Elsevier, vol. 9(4), pages 545-556, December. [Downloadable!] (restricted)
  5. Cressy, Robert, 1996. " Commitment Lending under Asymmetric Information: Theory and Tests on U.K. Startup Data," Small Business Economics, Springer, vol. 8(5), pages 397-408, October.
  6. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June. [Downloadable!] (restricted)
  7. Gropp, Reint & Scholz, John Karl & White, Michelle J, 1997. "Personal Bankruptcy and Credit Supply and Demand," The Quarterly Journal of Economics, MIT Press, vol. 112(1), pages 217-51, February.
    Other versions:
  8. 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. [Downloadable!] (restricted)
  9. Douglas Holtz-Eakin & David Joulfaian & Harvey S. Rosen, 1994. "Entrepreneurial Decisions and Liquidity Constraints," NBER Working Papers 4526, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  10. R. Glenn Hubbard, 1998. "Capital-Market Imperfections and Investment," Journal of Economic Literature, American Economic Association, vol. 36(1), pages 193-225, March. [Downloadable!] (restricted)
    Other versions:
  11. William G. Gale, 1988. "Federal Lending and the Market for Credit," UCLA Economics Working Papers 504, UCLA Department of Economics. [Downloadable!]
  12. Cressy, Robert, 1996. "Are Business Startups Debt-Rationed?," Economic Journal, Royal Economic Society, vol. 106(438), pages 1253-70, September. [Downloadable!] (restricted)
  13. RAFAEL LaPORTA & FLORENCIO LOPEZ-de-SILANES & ANDREI SHLEIFER & ROBERT W. VISHNY, . "Legal Determinants of External Finance,"," CRSP working papers 324, Center for Research in Security Prices, Graduate School of Business, University of Chicago.
    Other versions:
  14. Jaffee, Dwight & Stiglitz, Joseph, 1990. "Credit rationing," Handbook of Monetary Economics, in: B. M. Friedman & F. H. Hahn (ed.), Handbook of Monetary Economics, edition 1, volume 2, chapter 16, pages 837-888 Elsevier. [Downloadable!] (restricted)
  15. Simon C. Parker, 2003. "Asymmetric information, occupational choice and government policy," Economic Journal, Royal Economic Society, vol. 113(490), pages 861-882, October. [Downloadable!] (restricted)
  16. Black, Jane & de Meza, David, 1994. "The nature of credit-market failure," Economics Letters, Elsevier, vol. 46(3), pages 243-249, November. [Downloadable!] (restricted)
  17. Bates, Timothy, 1990. "Entrepreneur Human Capital Inputs and Small Business Longevity," The Review of Economics and Statistics, MIT Press, vol. 72(4), pages 551-59, November. [Downloadable!] (restricted)
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  21. 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. [Downloadable!] (restricted)
  22. David G. Blanchflower & Phillip B. Levine & David J. Zimmerman, 1998. "Discrimination in the Small Business Credit Market," NBER Working Papers 6840, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  23. 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. [Downloadable!] (restricted)
  24. 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. [Downloadable!] (restricted)
  25. Josh Lerner, 2002. "When Bureaucrats Meet Entrepreneurs: The Design of Effective "Public Venture Capital" Programmes," Economic Journal, Royal Economic Society, vol. 112(477), pages F73-F84, February. [Downloadable!] (restricted)
  26. Allen N. Berger & Gregory F. Udell, 2001. "Small business credit availability and relationship lending: the importance of bank organizational structure," Finance and Economics Discussion Series 2001-36, Board of Governors of the Federal Reserve System (U.S.). [Downloadable!]
    Other versions:
  27. 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. [Downloadable!]
  28. Robert E. Carpenter & Bruce C. Petersen, 2002. "Capital Market Imperfections, High-Tech Investment, and New Equity Financing," Economic Journal, Royal Economic Society, vol. 112(477), pages F54-F72, February. [Downloadable!] (restricted)
  29. Barton H. Hamilton, 2000. "Does Entrepreneurship Pay? An Empirical Analysis of the Returns to Self-Employment," Journal of Political Economy, University of Chicago Press, vol. 108(3), pages 604-631, June. [Downloadable!] (restricted)
  30. Blanchflower, David G & Oswald, Andrew J, 1998. "What Makes an Entrepreneur?," Journal of Labor Economics, University of Chicago Press, vol. 16(1), pages 26-60, January. [Downloadable!] (restricted)
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  31. 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. [Downloadable!] (restricted)
    Other versions:
Full references

Cited by:
(explanations, 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.)

  1. Cesaroni Giovanni & Messori Marcello, 2003. "Financial Constraints and Unemployment Equilibrium," Departmental Working Papers 191, Tor Vergata University, CEIS. [Downloadable!]
    Other versions:
  2. Christian Keuschnigg & Soren Bo Nielsen, 2006. "Self-Selection and Advice in Venture Capital Finance," University of St. Gallen Department of Economics working paper series 2006 2006-06, Department of Economics, University of St. Gallen. [Downloadable!]
    Other versions:
  3. Keuschnigg, Christian & Nielsen, Soren Bo, 2003. "Taxation and Venture Capital-Backed Entrepreneurship," CEPR Discussion Papers 4097, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  4. Andy Cosh & Douglas Cumming & Alan Hughes, 2005. "Outside Entrepreneurial Capital," ESRC Centre for Business Research - Working Papers wp301, ESRC Centre for Business Research. [Downloadable!]
    Other versions:
  5. Ari Hyytinen & Lotta Väänänen, 2004. "Mandatory Auditor Choice and Small Finance: Evidence from Finland," Discussion Papers 950, The Research Institute of the Finnish Economy. [Downloadable!]
  6. Vesala , Timo, 2004. "Asymmetric information in credit markets and entrepreneurial risk taking," Research Discussion Papers 14/2004, Bank of Finland. [Downloadable!]
  7. Wei Fan & Michelle J. White, 2002. "Personal Bankruptcy and the Level of Entrepreneurial Activity," NBER Working Papers 9340, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  8. Ramana Nanda, 2008. "Entrepreneurship and the Discipline of External Finance," Harvard Business School Working Papers 08-047, Harvard Business School. [Downloadable!]
  9. Karel Janda, 2008. "Which Government Interventions Are Good in Alleviating Credit Market Failures?," Working Papers IES 2008/12, Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies, revised Jul 2008. [Downloadable!]
  10. Christian Keuschnigg & Soren Bo Nielsen, 2003. "Public Taxation and Venture Capital Backed Entrepreneurship," University of St. Gallen Department of Economics working paper series 2003 2003-17, Department of Economics, University of St. Gallen. [Downloadable!]
  11. Brendan Burchell & Alan Hughes, 2006. "The stigma of failure: An international comparison of failure tolerance and second chancing," ESRC Centre for Business Research - Working Papers wp334, ESRC Centre for Business Research. [Downloadable!]
  12. Bas Jacobs & Sweder J.G. van Wijnbergen, 2005. "Capital Market Failure, Adverse Selection and Equity Financing of Higher Education," Tinbergen Institute Discussion Papers 05-037/3, Tinbergen Institute. [Downloadable!]
    Other versions:
  13. Robert Cressy, 2002. "Introduction: Funding Gaps," Economic Journal, Royal Economic Society, vol. 112(477), pages F1-F16, February. [Downloadable!] (restricted)
  14. Grazia Rapisarda & Eleonora Patacchini, 2003. "A Study of the Effectiveness of Credit Subsidies: Evidence from a Panel of Italian Firms," Economics Series Working Papers 153, University of Oxford, Department of Economics. [Downloadable!]
  15. Bertocco Giancarlo, 2003. "The role of banks in financing small and medium firms," Economics and Quantitative Methods qf0308, Department of Economics, University of Insubria. [Downloadable!]
  16. Patrick Honohan, 2008. "Partial Credit Guarantees: Principles and Practice," The Institute for International Integration Studies Discussion Paper Series iiisdp244, IIIS. [Downloadable!]
  17. Douhan, Robin & Henrekson, Magnus, 2007. "The Political Economy of Entrepreneurship: An Introduction," Working Paper Series 688, Research Institute of Industrial Economics. [Downloadable!]
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