The Effect of Credit Rationing on the Probability of SMEs Investing

This article examines the effect of credit rationing on the probability of borrowers and non-borrowers deciding to invest. Primary data from Indonesia’s automotive small-medium-sized enterprises (SMEs) was analysed using two-stage residual inclusion. We found that credit rationing (weak and strong t...

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Bibliographic Details
Published inReview of development finance Vol. 11; no. 2; pp. 18 - 38
Main Authors Hidayat, Agus Syarip, Pok, Wee Ching
Format Journal Article
LanguageEnglish
Published Amsterdam AfricaGrowth Institute 01.12.2021
Subjects
Asymmetric information
Credit
E51
G11
G20
l25
Organizational performance
Probability
Rationing
Risk reduction
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Summary:This article examines the effect of credit rationing on the probability of borrowers and non-borrowers deciding to invest. Primary data from Indonesia’s automotive small-medium-sized enterprises (SMEs) was analysed using two-stage residual inclusion. We found that credit rationing (weak and strong types), reduces the borrower’s probability of investing and negatively affects firm performance. For non-borrowers, all types of credit rationing (quantity, transaction cost, risk and cultural) adversely affect the probability of investing. Three factors that could reduce credit rationing are: increasing collateral value, establishing risk-sharing schemes, and increasing banks competition. Our findings constitute a new step toward understanding the firms’ risk-sharing schemes to minimize asymmetric information in credit allocation.
ISSN:1879-9337
1879-9337
DOI:10.10520/ejc-rdfin_v11_n2_a2