Credit rationing or overlending? An exploration into financing imperfection. Issue 57 (7th December 2016)

• Record Type: Journal Article
• Authors: Bonnet, Jean; Cieply, Sylvie; Dejardin, Marcus
• Is Part Of: Applied economics. Volume 48:Issue 57(2016)
• Page Start: 5563
• Page End: 5580
• Publication Date: 2016-12-07
• Subjects: Credit rationing -- overlending -- imperfect information -- asymmetric information -- new business; M13 -- G21 -- D82; Economics -- Periodicals; 330
• DOI: 10.1080/00036846.2016.1181829
• Languages: English
• ISSNs: 0003-6846

Abstract

ABSTRACT: Small and new firms are deemed to be unable to obtain sufficient bank loans. This idea finds a strong theoretical support in credit rationing theory. However, this is vigorously challenged by De Meza and Webb (1987, 2000) suggesting that firms can benefit from an excess of credit, i.e. overlending. Credit rationing or overlending? The contribution of this empirical article is twofold: to our knowledge, it is the first to make an attempt in measuring the relative importance of these two types of financing imperfection and to explore factors leading to one or the other. We exploit a rich panel data set on the access to bank 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 told by De Meza and Webb (1987) appears to be a much more realistic model. In addition, we identify factors, linked to the starter, the project or the industry, that are closely associated with credit rationing and/or overlending. Most factors enter into a consistent relation: when they are positively (negatively) associated with credit rationing, they are negatively (positively) associated with overlending.