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The Borrower's Curse: Optimism, Finance and Enterpreneurship

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Author Info

  • De Meza, D.
  • Southey, C.

Abstract

This paper argues that most of the facts charaterising small-scale businesses, including high failure rates, reliance on bank credit rather than equity finance, relatively low interest rate margins, and credit rationing, can be explained by a tendancy for those who are excessively optimistic to dominate new entrants. Drawing on findings in psycology, we model entrants as relatively naive optimisers. Banks on the other hand are viewed as well informed and efficient processors of information.

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Bibliographic Info

Paper provided by Exeter University, Department of Economics in its series Discussion Papers with number 9502.

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Length: 19 pages
Date of creation: 1995
Date of revision:
Handle: RePEc:exe:wpaper:9502

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Postal: Streatham Court, Rennes Drive, Exeter EX4 4PU
Phone: (01392) 263218
Fax: (01392) 263242
Web page: http://business-school.exeter.ac.uk/about/departments/economics/
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Related research

Keywords: CREDIT; BANKS; INFORMATION;

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