Imperfect Information, Uncertainty, and Credit Rationing: A Reply

University of California, Davis, Davis, California, United States
Quarterly Journal of Economics (Impact Factor: 5.92). 02/1984; 99(4):869-72. DOI: 10.2307/1883130
Source: RePEc
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    • "But a speci…c borrower's "promise" is not as good as that by another borrower and there may be no objective way to determine the likelihood that the "promise" will be kept. Moral hazard and adverse selection a¤ect the likelihood of loan repayment whence asymmetric information and incentive (principal-agent) problems may lead credit rationing to persist in equilibrium (Ja¤ee and Russell, 1976; Stiglitz and Weiss, 1981). Banks, through adequate screening and monitoring procedures, can overcome asymmetric information and incentive problems and reduce …rms'credit constraints (Diamond, 1984; Rajan, 1992; Bhattacharya and Thakor, 1993). "
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    ABSTRACT: This paper tests the impact of an imperfect firm-bank type match on firms' financial constraints using a dataset of about 4,500 Italian manufacturing firms. Considering an optimal match of opaque (transparent) borrowing firms with relational (transactional) lending main banks, the possibility arises of firm-bank "odd couples" where opaque firms end up matched with transactional main banks. We show that the probability of credit rationing increases when the mismatch between firms and banks widens. Our conjecture is that "odd couples" emerge either because of organizational changes in the credit market or since firms observe only imperfectly banks' lending technology.
    Journal of Financial Intermediation 04/2015; 24(2):231-251. · 1.81 Impact Factor
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    • "Furtermore, concerning the risk level of business, previous research has shown how young and small firms are associated with high risk as they lack past experience and no complete information on their operational activities and quality are available. Due to information asymmetries, small and young enterprises are often subject to 'credit rationing' (Jaffe and Russel 1976; Stiglitz and Weiss 1981; Fazzari et al. 1988; Winker 1999). "
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    ABSTRACT: Purpose – The purpose of this paper is to identify the factors affecting the growth of companies listed on the Alternative Investment Market (AIM), the London Stock Exchange market for young and growing companies. Design/methodology/approach – The author investigates post-initial public offering (IPO) growth for a panel of 665 companies listed on the AIM between 1995 and 2006. The empirical model uses the generalized method of moment-System (GMM-SYS) estimator.Findings – The findings confirm that small companies listed on the AIM grow more quickly after the IPO. It seems that both human capital and firm characteristics are important determinants of their rapid growth. Practical implications – The results of this study have some implications for policy. Policy makers should take account of the relevance of an efficient financial system. It is important also to consider the process of transformation of the cultural and behavioural attitudes of various countries towards entrepreneurship.Originality/value – This paper analyses the determinants of firm growth in a particular entrepreneurial setting, that is, IPO on the AIM, the sub-market of the London Stock Exchange.
    International Journal of Entrepreneurial Behaviour &amp Research 03/2015; 21(1):107-127. DOI:10.1108/IJEBR-10-2013-0181
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    • "Rationing can take the two forms of (i) loan size rationing, which means that, at the current interest rate, all borrowers are served but demand a larger loan amount than they finally receive from the bank and (ii) borrower rationing, which means that some borrowers get no loan at all although they may have profitable investment projects and are indistinguishable from those borrowers who receive loans (Keeton (1979)). Jaffee and Russell (1976) establish loan size rationing in a model in which borrowers differ in their probability of default in the sense that some borrowers are honest and repay whenever they are able to while other borrowers are dishonest experiencing a utility increase from defaulting and do so whenever the costs of default are lower than the contracted repayment. In the model of Parker (2003) adverse selection and thus borrower rationing occurs because borrowers differ in their ability. "
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    ABSTRACT: I study credit rationing in small business bank relationships by using a unique data set of matched loan application and loan contract information. This data set establishes the degree of credit rationing by relating a business’s requested loan amount to the bank’s granted amount. In line with theoretical predictions, credit rationing is higher for opaque than transparent businesses at the beginning of their bank relationships but decreases over time for both. After testing for several alternative rationales, the results suggest that information and incentive problems explain the observed credit rationing and its dynamics.
    SSRN Electronic Journal 07/2012; DOI:10.2139/ssrn.1785414
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