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The real effects of credit constraints: evidence from discouraged borrowers in the euro area

Author

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  • Ferrando, Annalisa
  • Mulier, Klaas

Abstract

This paper uses a new survey-based data set and a model with strong theoretical under-pinnings to explain the characteristics and behaviour of discouraged borrowers in the euro area. The results show that more borrowers are discouraged when the average interest rate charged by banks in a country is higher. Higher corporate tax rates, on the other hand, lead to lower discouragement. We show that discouragement has strong negative effects on in- vestment growth (-4.7pp), employment growth (-2.7pp) and asset growth (-2.9pp) due to the lack of access to bank finance in the two years following the discouragement. Furthermore, we estimate that the majority of discouraged borrowers would be unable to get a loan if they would apply. Consistent with this low loan approval likelihood, discouraged borrowers tend to be relatively risky firms. JEL Classification: G01, G10, G30, G32

Suggested Citation

  • Ferrando, Annalisa & Mulier, Klaas, 2015. "The real effects of credit constraints: evidence from discouraged borrowers in the euro area," Working Paper Series 1842, European Central Bank.
    • Handle: RePEc:ecb:ecbwps:20151842
    Note: 235236
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Donata Faccia & Giuseppe Corbisiero, 2020. "Firm or bank weakness? Access to finance since the European sovereign debt crisis," Trinity Economics Papers tep0320, Trinity College Dublin, Department of Economics.
    2. Anoosheh Rostamkalaei & Miwako Nitani & Allan Riding, 2020. "Borrower discouragement: the role of informal turndowns," Small Business Economics, Springer, vol. 54(1), pages 173-188, January.
    3. Szabó, Zsolt, 2019. "Elbátortalanodott hiteligénylők a vállalati szektorban [Discouraged borrowers in the corporate sector]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1145-1186.
    4. Corbisiero, Giuseppe & Faccia, Donata, 2019. "Firms' or banks' weakness? Access to finance since the European sovereign debt crisis," Research Technical Papers 12/RT/19, Central Bank of Ireland.
    5. Jaulín-Méndez, Oscar, 2022. "The effect of size and productivity on borrowing discouragement for small firms in Colombia," Latin American Journal of Central Banking (previously Monetaria), Elsevier, vol. 3(4).
    6. García-Posada Gómez, Miguel, 2019. "Credit constraints, firm investment and employment: Evidence from survey data," Journal of Banking & Finance, Elsevier, vol. 99(C), pages 121-141.
    7. Walthoff-Borm, Xavier & Schwienbacher, Armin & Vanacker, Tom, 2018. "Equity crowdfunding: First resort or last resort?," Journal of Business Venturing, Elsevier, vol. 33(4), pages 513-533.
    8. Giorgio Albareto & Michele Cascarano & Stefania De Mitri & Cristina Demma & Roberto Felici & Carlotta Rossi, 2022. "The banking system and the financing of southern Italian firms," Questioni di Economia e Finanza (Occasional Papers) 684, Bank of Italy, Economic Research and International Relations Area.
    9. Drakos, Konstantinos & Giannakopoulos, Nicholas, 2018. "Self and bank credit rationing: a trivariate probit with double selection," Research in International Business and Finance, Elsevier, vol. 44(C), pages 124-134.
    10. McQuinn, John, 2019. "SME access to finance in Europe: structural change and the legacy of the crisis," Research Technical Papers 10/RT/19, Central Bank of Ireland.
    11. Ross Brown & José M. Liñares-Zegarra & John O.S. Wilson, 2022. "Innovation and borrower discouragement in SMEs," Small Business Economics, Springer, vol. 59(4), pages 1489-1517, December.
    12. Kraemer-Eis, Helmut & Lang, Frank & Torfs, Wouter & Gvetadze, Salome, 2015. "European Small Business Finance Outlook: December 2015," EIF Working Paper Series 2015/32, European Investment Fund (EIF).
    13. Mustafa Caglayan & Oleksandr Talavera & Lin Xiong & Jing Zhang, 2022. "What does not kill us makes us stronger: the story of repetitive consumer loan applications," The European Journal of Finance, Taylor & Francis Journals, vol. 28(1), pages 46-65, January.
    14. Demoussis, Michael & Drakos, Konstantinos & Giannakopoulos, Nicholas, 2016. "The Impact of Sovereign Ratings on Eurozone SMEs Credit Rationing," MPRA Paper 76364, University Library of Munich, Germany.
    15. Jean-Christophe Statnik & Thi-Le-Giang Vu & Laurent Weill, 2023. "Does Corruption Discourage More Female Entrepreneurs from Applying for Credit?," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 65(1), pages 1-28, March.
    16. Gómez, Miguel García-Posada, 2018. "Credit constraints, firm investment and growth: evidence from survey data," Working Paper Series 2126, European Central Bank.
    17. Rossi, Emanuele & Bongini, Paola & Ferrando, Annalisa & Rossolini, Monica, 2017. "Suitable or non-suitable? An investigation of Eurozone SME access to market-based finance," CEPR Discussion Papers 12006, C.E.P.R. Discussion Papers.
    18. Corrigan, Eoin & O'Toole, Conor & Slaymaker, 2020. "Credit demand in the Irish mortgage market: What is the gap and could public lending help?," Papers WP671, Economic and Social Research Institute (ESRI).
    19. Bukalska Elżbieta & Skibińska-Fabrowska Ilona, 2023. "Corporate Investment in Bank-Dependent Companies in Crisis Time," Central European Economic Journal, Sciendo, vol. 10(57), pages 1-22, January.
    20. Pal, Rozalia & Wruuck, Patricia & Stamate, Amalia & Dumitrescu, Constantin Catalin, 2019. "Investment: What holds Romanian firms back?," EIB Working Papers 2019/08, European Investment Bank (EIB).
    21. Annalisa Ferrando & Klaas Mulier, 2015. "Firms’ Financing Constraints: Do Perceptions Match the Actual Situation?," The Economic and Social Review, Economic and Social Studies, vol. 46(1), pages 87-117.
    22. Kallandranis, Christos & Anastasiou, Dimitrios & Drakos, Konstantinos, 2023. "Credit rationing prevalence for Eurozone firms," Journal of Business Research, Elsevier, vol. 158(C).
    23. Antonecchia, Gianluca, 2023. "Heterogeneous expectations, forecast accuracy and firms’ credit demand," European Economic Review, Elsevier, vol. 154(C).
    24. Michael Demoussis & Konstantinos Drakos & Nicholas Giannakopoulos, 2017. "The impact of sovereign ratings on euro zone SMEs’ credit rationing," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(5), pages 745-764, October.
    25. Ozan Güler & Mike Mariathasan & Klaas Mulier & Nejat G. Okatan, 2021. "The real effects of banks' corporate credit supply: A literature review," Economic Inquiry, Western Economic Association International, vol. 59(3), pages 1252-1285, July.

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    More about this item

    Keywords

    Discouraged borrowers; real effects; static trade-off theory; survey data;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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