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The Provision of Finance to Small Businesses: Does the Banking Relationship Constrain Performance

Author

Listed:
  • Christine T. Ennew

    (University Nottingham)

  • Martin R. Binks

    (University Nottingham)

Abstract

The beneficial economic effects of entrepreneurial activity can only be realised if such activity is relatively unconstrained in both product and factor markets, finance has been widely identified as a potential constraint on entrepreneurial activity due to either debt or equity gaps. However, in terms of externally supplied finance, it is arguably the availability of debt which is of greatest signifi­cance to most entrepreneurs. Given the inevitable information problems associated with the provision of debt finance, the nature of the relationship between bank and entrepreneur can be of considerable importance in ensuring the appropriate financing decisions are made. This paper examines the link between the banking relationship and the extent to which entrepreneurs are constrained by financing arrangements. Empirical analysis of the extent to which the banking relationship constrains performance suggests that there is no significant difference between more and less successful entrepreneurs.

Suggested Citation

  • Christine T. Ennew & Martin R. Binks, 1995. "The Provision of Finance to Small Businesses: Does the Banking Relationship Constrain Performance," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 4(1), pages 57-73, Spring.
  • Handle: RePEc:pep:journl:v:4:y:1995:i:1:p:57-73
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    File URL: http://jefsite.org/RePEc/pep/journl/jef-1995-04-1-c-ennew.pdf
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    References listed on IDEAS

    as
    1. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
    2. Richard L. Constand & Jerome S. Osteryoung & Donald A. Nast, 1991. "Revolving Asset-Based Lending Contracts and the Resolution of Debt-Related Agency Problems," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 1(1), pages 15-28, Spring.
    3. David de Meza & David C. Webb, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, Oxford University Press, vol. 102(2), pages 281-292.
    4. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Susan Coleman, 2004. "The "Liability of Newness" and Small Firm Access to Debt Capital: Is There a Link?," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 9(2), pages 37-60, Summer.
    2. Bergner, Sören Martin & Bräutigam, Rainer & Evers, Maria Theresia & Spengel, Christoph, 2017. "The use of SME tax incentives in the European Union," ZEW Discussion Papers 17-006, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
    3. Joshua Abor & Nicholas Biekpe, 2007. "Small Business Reliance on Bank Financing in Ghana," Emerging Markets Finance and Trade, Taylor & Francis Journals, vol. 43(4), pages 93-102, August.
    4. Joshua Abor & Nicholas Biekpe, 2007. "Small Business Reliance on Bank Financing in Ghana," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 43(4), pages 93-102, August.

    More about this item

    Keywords

    Banking ; Finance; Small Business; Small Firms; Relationship Banking; Bank;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance
    • 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

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