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

Author

Listed:
  • Andrea Moro

    (University of Leicester, UK)

  • Mike R. Lucas

    (The Open University Business School, UK)

  • Devendra Kodwani

    (The Open University Business School, UK)

Abstract

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.

Suggested Citation

  • Andrea Moro & Mike R. Lucas & Devendra Kodwani, 2012. "Trust and the Demand for Personal Collateral in SME - Bank Relationships," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 16(1), pages 57-79, Spring.
  • Handle: RePEc:pep:journl:v:16:y:2012:i:1:p:57-79
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    More about this item

    Keywords

    Trust; Relationship lending; Relationship Banking; SME; Personal Collateral;

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design

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