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Problems of Evaluating Small Firms’ Quality as a Reason for Unfavourable Loan Conditions

Author

Listed:
  • Ingrid Groessl

    (HWP-Hamburger Universität für Wirtschaft und Politik)

  • Nadine Levratto

Abstract

The article substantiates the hypothesis that the profitability of small firms is above all determined by qualitative variables. In this respect a low standardization of goods and even more importantly, the high significance of governance structures play a crucial role rendering the quality of the firm’s human capital, the flexibility of its machinery but also externalities of business networks, an appropriate integration of the family into business affairs as examples of qualitative information which also bear a high degree of privacy. Whereas the literature suggests relational contracts as a way how qualitative and private information can be credibly conveyed to the lender, it is shown that even in the German housebank-dominated financial system borrower- lender relationships of the kind recommended by the literature are hardly to be found. Rather, German banks, too, respond to information gaps with unfavourable loan conditions. As an alternative specialized information intermediation is briefly discussed.

Suggested Citation

  • Ingrid Groessl & Nadine Levratto, 2004. "Problems of Evaluating Small Firms’ Quality as a Reason for Unfavourable Loan Conditions," Finance 0406014, EconWPA.
  • Handle: RePEc:wpa:wuwpfi:0406014
    Note: Type of Document - pdf; pages: 20
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    File URL: https://econwpa.ub.uni-muenchen.de/econ-wp/fin/papers/0406/0406014.pdf
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    References listed on IDEAS

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    Cited by:

    1. António Pedro Soares Pinto & Mário Gomes Augusto & Pedro M. Gama, 2010. "Bank Relationships And Corporate Governance: A Survey Of The Literature From The Perspective Of Smes," Portuguese Journal of Management Studies, ISEG, Universidade de Lisboa, vol. 0(1), pages 65-85.

    More about this item

    Keywords

    Small firms financing; rationing; information;

    JEL classification:

    • G - Financial Economics

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