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Credit rationing or overlending:Who is right ?

Author

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  • Jean Bonnet

    (Normandie University, Caen, Faculty of Economics and Business Administration - CREM CNRS UMR6211, France)

  • Sylvie Cieply

    (Normandie University, Caen, Institut Banque-Assurance - CREM CNRS UMR6211, France)

  • Marcus Dejardin

    (Université Catholique de Louvain and University of Namur, CERPE, Belgium)

Abstract

There is a widespread belief in both academic literature and policy circles that small firms are unable to obtain sufficient banking loans.This idea finds a strong theoretical support in credit rationing theory, as initiated by Stiglitz and Weiss (1981). However, this is vigorously challenged by De Meza and Webb (1987, 2000) suggesting contrastingly that firms can benefit from an excess of credit. This empirical article is the first to test these two theories using data on the access to credit for new French businesses during the mid 1990s. Our results show that credit rationing was not highly spread among French new firms. The story described by De Meza and Webb (1987) appears to be a much more realistic model. Finally, we identify factors closely associated with credit rationing and overlending.

Suggested Citation

  • Jean Bonnet & Sylvie Cieply & Marcus Dejardin, 2013. "Credit rationing or overlending:Who is right ?," Economics Working Paper Archive (University of Rennes 1 & University of Caen) 201309, Center for Research in Economics and Management (CREM), University of Rennes 1, University of Caen and CNRS.
  • Handle: RePEc:tut:cremwp:201309
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    File URL: https://crem-doc.univ-rennes1.fr/wp/2013/201309.pdf
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    References listed on IDEAS

    as
    1. Marco Cagetti & Mariacristina De Nardi, 2006. "Entrepreneurship, Frictions, and Wealth," Journal of Political Economy, University of Chicago Press, vol. 114(5), pages 835-870, October.
    2. Benston, George J & Smith, Clifford W, Jr, 1976. "A Transactions Cost Approach to the Theory of Financial Intermediation," Journal of Finance, American Finance Association, vol. 31(2), pages 215-231, May.
    3. Evans, David S & Jovanovic, Boyan, 1989. "An Estimated Model of Entrepreneurial Choice under Liquidity Constraints," Journal of Political Economy, University of Chicago Press, vol. 97(4), pages 808-827, August.
    4. Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
    5. Robert W. Fairlie & Harry A. Krashinsky, 2012. "Liquidity Constraints, Household Wealth, And Entrepreneurship Revisited," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 58(2), pages 279-306, June.
    6. Douglas W. Diamond & Raghuram G. Rajan, 2001. "Liquidity Risk, Liquidity Creation, and Financial Fragility: A Theory of Banking," Journal of Political Economy, University of Chicago Press, vol. 109(2), pages 287-327, April.
    7. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
    8. 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.
    9. Jenny Nykvist, 2008. "Entrepreneurship and Liquidity Constraints: Evidence from Sweden," Scandinavian Journal of Economics, Wiley Blackwell, vol. 110(1), pages 23-43, March.
    10. Fama, Eugene F., 1985. "What's different about banks?," Journal of Monetary Economics, Elsevier, vol. 15(1), pages 29-39, January.
    11. de Meza, David & Webb, David, 2000. "Does credit rationing imply insufficient lending?," Journal of Public Economics, Elsevier, vol. 78(3), pages 215-234, November.
    12. Steven N. Kaplan & Luigi Zingales, 1997. "Do Investment-Cash Flow Sensitivities Provide Useful Measures of Financing Constraints?," The Quarterly Journal of Economics, Oxford University Press, vol. 112(1), pages 169-215.
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    More about this item

    Keywords

    Credit Rationing; Overlending; Asymmetric information; New business;

    JEL classification:

    • L26 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Entrepreneurship
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • D82 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Asymmetric and Private Information; Mechanism Design
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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