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Truth and consequences: Bogus pipeline experiment in informal small business lending

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  • Römer, Ulf
  • Weber, Ron
  • Mußhoff, Oliver
  • Turvey, Calcum G.

Abstract

The prevention of asymmetric information plays a major role in successful small business lending. The purpose of this research is to determine if small business applicants report their income information correctly when requesting a loan. Therefore, a randomized controlled trial bogus pipeline experiment was set up during a typical cash-flow analysis of a bank for small businesses in the Philippines. Results indicate that loan applicants of the treatment group reported a lower income, an effect which is most pronounced in the lowest income percentile. Moreover, our analyses reveal higher loan delinquencies in the control group.

Suggested Citation

  • Römer, Ulf & Weber, Ron & Mußhoff, Oliver & Turvey, Calcum G., 2017. "Truth and consequences: Bogus pipeline experiment in informal small business lending," DARE Discussion Papers 1702, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
  • Handle: RePEc:zbw:daredp:1702
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    Keywords

    Small business finance; Income reporting; Asymmetric information; Bogus pipeline; Randomized controlled trial;

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