Bundling governance mechanisms to efficiently organize small firm loans
AbstractBank loans are a common source of financing for small firms. While scholars have examined specific conditions that affect small firm loan approval and interest rates, practical questions remain about how these loans are structured to address characteristically acute challenges from asymmetric information. This paper suggests collateral, reputation, and relationship banking each perform unique exchange-organizing tasks, and that small firms systematically use them in predictable combinations. A multiple discriminant analysis of 796 small firm loans suggests four governance bundles are commonly employed in this setting. The implications for managers focus on how loan governance mechanisms are most efficiently bundled together.
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Bibliographic InfoArticle provided by Elsevier in its journal Journal of Business Venturing.
Volume (Year): 24 (2009)
Issue (Month): 2 (March)
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Web page: http://www.elsevier.com/locate/jbusvent
Small firm borrowing Collateral Reputation Relationship banking Exchange-organizing tasks;
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