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Creditworthiness as a signal of trustworthiness

  • Becchetti, Leonardo

    ()

    (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

  • Conzo, Pierluigi

    ()

    (Associazione Italiana per la Cultura della Cooperazione e del Non Profit)

Creditworthiness and trustworthiness are almost synonyms since the act of conferring a loan has the indirect effect of signaling the trustworthiness of the borrower. We test the creditworthiness-trustworthiness nexus in an investment game experiment on a sample of participants/non participants to a microfinance program in Argentina and find that trustors give significantly more to (and believe they will receive more from) microfinance borrowers. Trustees’ first and second order beliefs are also consistent with this picture. Our findings identify a “horizontal trustworthiness externality” which creates a direct (loan-performance) causality nexus since the mere loan provision increases the borrower’s attractiveness as a business partner.

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Paper provided by Associazione Italiana per la Cultura della Cooperazione e del Non Profit in its series AICCON Working Papers with number 67-2009.

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Length: 62 pages
Date of creation: 07 Dec 2010
Date of revision:
Handle: RePEc:ris:aiccon:2009_067
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