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The Bank Financing of Small Unlisted Firms in the UK: An Analysis of Recent Conflicts

  • Kevin Keasey

    (University of Leeds)

  • Robert Watson

    (University of Leeds)

Registered author(s):

    This paper examines the characteristics of UK small firm bank finance and the causes of the frequently strained relationship between small firms and banks in the UK. Debt, credit rationing, and call option problems under the UK system are examined. The bank’s solutions including the potentially harmful “secured overdraft system” are then considered. It is argued that the majority of solutions tried by the banking system led to a heightened conflict of interest between small firms and banks during the recent recession due to the banks’ loan restructuring to avoid unnecessary risk.

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    File URL: http://jefsite.org/RePEc/pep/journl/jef-1995-04-2-d-keasey.pdf
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    Article provided by Pepperdine University, Graziadio School of Business and Management in its journal Journal of Small Business Finance.

    Volume (Year): 4 (1995)
    Issue (Month): 2 (Fall)
    Pages: 143-63

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    Handle: RePEc:pep:journl:v:4:y:1995:i:2:p:143-63
    Contact details of provider: Postal: 24255 Pacific Coast Hwy, Malibu CA
    Web page: http://bschool.pepperdine.edu/jef

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    1. Gregory E. Elliehausen & John D. Wolken, 1990. "Banking markets and the use of financial services by small and medium- sized businesses," Staff Studies 160, Board of Governors of the Federal Reserve System (U.S.).
    2. Stephen D. Williamson, 1984. "Costly Monitoring, Financial Intermediation, and Equilibrium Credit Rationing," Working Papers 583, Queen's University, Department of Economics.
    3. Kevin Keasey & Robert Watson, 1995. "The pricing of small firm bank finance: evidence from the UK," Applied Economics Letters, Taylor & Francis Journals, vol. 2(7), pages 208-210.
    4. Bester, Helmut, 1987. "The role of collateral in credit markets with imperfect information," European Economic Review, Elsevier, vol. 31(4), pages 887-899, June.
    5. Mayer, Colin, 1987. "New Issues in Corporate Finance," CEPR Discussion Papers 181, C.E.P.R. Discussion Papers.
    6. de Meza, David & Webb, David, 1990. "Risk, Adverse Selection and Capital Market Failure," Economic Journal, Royal Economic Society, vol. 100(399), pages 206-14, March.
    7. 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.
    8. Williamson, Stephen D, 1987. "Financial Intermediation, Business Failures, and Real Business Cycles," Journal of Political Economy, University of Chicago Press, vol. 95(6), pages 1196-1216, December.
    9. Petersen, Mitchell A & Rajan, Raghuram G, 1994. " The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    10. de Meza, David & Webb, David C, 1987. "Too Much Investment: A Problem of Asymmetric Information," The Quarterly Journal of Economics, MIT Press, vol. 102(2), pages 281-92, May.
    11. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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