Nguyen, Thanh Thao (2021) Discouraged borrowing, credit rationing and firm growth : a learning model in small firm. PhD thesis, University of Warwick.

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Abstract

Although asymmetric information in financial markets has been studied extensively in the literature, and the credit-rationing issue is well understood, less is known about discouraged borrowers. Studies on small businesses, however, show that discouraged borrowers account for a larger proportion of the economy than credit-rationed businesses. Overall, there is a lack of studies on the determinants of discouraged-borrowing decisions as well as how discouragement is different from credit rationing in terms of their impacts on firm performance. Although rooted in market failure, discouraged borrowing is a self-rationing decision made by the firm itself, and thus, it reflects firms’ decision-making processes. In this context, this thesis will investigate firms’ borrowing-decision processes. It will also study impacts of discouraged borrowing and credit rationing on firm growth. Based on learning models, it shows that firms learn from their experience in forming their future decisions. In particular, credit rationing worsens the perceived rejection likelihood, which in turn increases the tendency to make a discouraged-borrowing decision. Moreover, the learning process also channels indirect impacts of discouraged-borrowing and credit-rationing on growth through their negative impacts on the perception of financial constraints and subsequent impacts on growth expectations. Disentangling the individual impacts of discouraged borrowing and credit rationing on growth is also of interest in this thesis. Using the UK Longitudinal Small Business Survey and the UK SME Finance Monitor, this study provides empirical evidence to support the model. It shows that firms rejected in the past are more likely to self-ration in the short and long term. It also supports the model in presenting distinctive direct impacts of discouraged borrowing and credit rationing on growth. Lastly, the evidence also shows that both types of financial constraints indirectly hinder growth expectations through their negative impacts on financial-constraint perceptions, and thus, impede growth outcomes in the future. Accordingly, the findings in this thesis suggest that to resolve financial constraint issues in small businesses, policymaking should address both supply and demand sides through various initiatives. For example, while credit-reference agencies and loan-guarantee schemes help reduce the informational-asymmetry issue on the supply side, policymakers should also raise awareness on the demand side of these initiatives.

Item Type:	Thesis (PhD)
Subjects:	H Social Sciences > HD Industries. Land use. Labor H Social Sciences > HG Finance
Library of Congress Subject Headings (LCSH):	Credit, Economic development, Small business -- Economic aspects, Small business -- Finance
Official Date:	March 2021
Dates:	Date Event March 2021 UNSPECIFIED
Institution:	University of Warwick
Theses Department:	Warwick Business School
Thesis Type:	PhD
Publication Status:	Unpublished
Supervisor(s)/Advisor:	Fraser, Stuart ; Mole, Kevin, 1961-
Format of File:	pdf
Extent:	205 leaves : illustrations
Language:	eng

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