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Trust and the Demand for Personal Collateral in SME - Bank Relationships

  • Andrea Moro

    (University of Leicester, UK)

  • Mike R. Lucas

    (The Open University Business School, UK)

  • Devendra Kodwani

    (The Open University Business School, UK)

Registered author(s):

    Previous research on relationship lending has paid very little attention to the role of trust. Trust might be ex-pected to reduce agency costs, perceived credit risk and thus the request for personal collateral. Trustworthiness is associated with three attributes of SME owner/managers’: ability, benevolence and integrity. We hypothe-sised that loan managers’ assessment of the trustworthiness of owner/managers is negatively associated with the personal collateral demanded by banks. Using the quantitative and qualitative data about 457 SMEs-bank rela-tionships in North East Italy, we tested this hypothesis. The results show that trust has a minor role in reducing the request of collateral.

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    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Entrepreneurial Finance.

    Volume (Year): 16 (2012)
    Issue (Month): 1 (Spring)
    Pages: 57-79

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    Handle: RePEc:pep:journl:v:16:y:2012:i:1:p:57-79
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