Discouraged borrowers: Evidence for Eurozone SMEs

• Published in: Journal of international financial markets, institutions & money Vol. 44; pp. 46 - 55
• Main Authors: Mac an Bhaird, Ciarán, Vidal, Javier Sanchez, Lucey, Brian
• Format: Journal Article
• Language: English
• Published: Amsterdam Elsevier B.V 01.09.2016; Elsevier Science Ltd
• Subjects: Borrowing; Discouraged borrowers; Economic crisis; Entrepreneurial finance; Eurozone; Financial crisis; Small & medium sized enterprises-SME; SMEs; Studies; Europe; Entrepreneurial finance; Discouraged borrowers; Eurozone; SMEs; Financial crisis
• ISSN: 1042-4431; 1873-0612
• DOI: 10.1016/j.intfin.2016.04.009

•Borrower discouragement is a significant barrier to investment in small firms.•We provide first-time evidence of borrower discouragement in 9 European countries.•Young, smaller firms are more discouraged from applying for intermediated bank debt.•Discouragement is procyclical, increasing as external business conditions deteriorate.•Borrower discouragement is reduced in more concentrated banking sectors. This study examines the decision by firm owners not to apply for intermediated debt due to a perception that their application will be rejected for a sample of small firms in 9 European countries. Compared with firms that applied for bank loans, discouraged borrowers are smaller, younger, have declining turnover and an increasing debt to assets ratio. Transmission of macro effects through the banking system and the economic environment also leads to higher levels of discouragement. Higher regulatory quality results in greater borrower discouragement, indicating the importance of regulation and enforcement mechanisms for the efficient functioning of private debt markets.