Got rejected? Real effects of not getting a loan

Tobias Berg

No 1960, Working Paper Series from European Central Bank

Abstract: Using a lender cut-off rule that generates plausibly exogenous variation in credit supply, I analyze real effects of loan rejections in a sample of small and medium-sized enterprises. I find that loan rejections reduce asset growth, investments, and employment, and these effects are concentrated among low liquidity firms. Precautionary savings motives aggravate real effects: firms whose loan applications got rejected increase cash holdings and cut non-cash assets in excess of the requested loan amount. These results point to the amplifying effect of precautionary savings motives in the transmission of credit supply shocks. JEL Classification: G21, G32, J23

Keywords: credit supply; liquidity demand; precautionary savings; real effects (search for similar items in EconPapers)
Date: 2016-09
New Economics Papers: this item is included in nep-ban and nep-lma
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Citations: View citations in EconPapers (10)

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