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Socio-Economics and the Probability of Loan Approval

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Listed:
  • Marcelo Siles
  • Steven D. Hanson
  • Lindon J. Robison

Abstract

This study analyzes the influence of relationships on the probability of loan approval. Michigan banks located in communities with a population of less than 10,000 supplied the data for this study by responding to hypothetical loan requests. The survey results demonstrate that in addition to the usual financial performance variables, business and social relationships between lenders and prospective borrowers significantly affect the likelihood of loan approval. The effects of relationships on the loan approval decision are largest when information on the financial strength of the prospective borrower is mixed. In cases where the financial strength of the loan applicant is unambiguously strong (weak), the loan is likely to be approved (rejected) regardless of the applicant's relationship with the lender.

Suggested Citation

  • Marcelo Siles & Steven D. Hanson & Lindon J. Robison, 1994. "Socio-Economics and the Probability of Loan Approval," Review of Agricultural Economics, Agricultural and Applied Economics Association, vol. 16(3), pages 363-372.
    • Handle: RePEc:oup:revage:v:16:y:1994:i:3:p:363-372.
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    File URL: http://hdl.handle.net/10.2307/1349696
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    Citations

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    Cited by:

    1. Jessica Holmes & Jonathan Isham & Jessica Wasilewski, 2002. "Overcoming Information Asymmetries in Low-Income Lending: Lessons from the "Working Wheels" Program," Middlebury College Working Paper Series 0244, Middlebury College, Department of Economics.
    2. Tseng, Jauling, 1996. "Farmer-borrowers' selection of short- and intermediate-term loan contracts: traditional lenders versus nontraditional lenders," ISU General Staff Papers 1996010108000012129, Iowa State University, Department of Economics.
    3. Hanson, Steven D. & Robison, Lindon J., 2001. "Impacts Of Social Capital On Investment Behavior Under Risk," Staff Paper Series 11533, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    4. Perry, Gregory M. & Robison, Lindon J., 1999. "Personal Relationships: Do They Influence The Sale Price Of Land?," 1999 Annual Meeting, July 11-14, 1999, Fargo, ND 35685, Western Agricultural Economics Association.
    5. Robinson, Lindon J. & Siles, Marcelo E., 1999. "Social capital and household income distributions in the United States: 1980, 1990," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 28(1), pages 43-93.
    6. Jessica Holmes & Jonathan Isham & Jessica Wasilewski, 2005. "Overcoming Information Asymmetries in Low‐Income Lending: Lessons from the “Working Wheels” Program," Southern Economic Journal, John Wiley & Sons, vol. 72(2), pages 329-351, October.
    7. Robison, Lindon J. & Siles, Marcelo E., 1997. "Social Capital and Household Income Distributions in the United States: 1980, 1990," Agricultural Economic Report Series 201434, Michigan State University, Department of Agricultural, Food, and Resource Economics.
    8. Jessica Holmes & Jonathan Isham & Ryan Petersen & Paul Sommers, 2005. "Does Relationship Lending Still Matter in the Consumer Banking Sector? Evidence from Two Financial Service Organizations in Vermont," Middlebury College Working Paper Series 0511, Middlebury College, Department of Economics.
    9. Brian C. Briggeman & Maria M. Akers, 2010. "The credit advantage of farm and rural small business ownership," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 70(3), pages 353-364, November.

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