The Provision of Finance to Small Businesses: Does the Banking Relationship Constrain Performance
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.
Volume (Year): 4 (1995)
Issue (Month): 1 (Spring)
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- 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.
- Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
- 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.
- 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.
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