How do Banks Assess Entrepreneurial Competence? The Role of Voluntary Information Disclosure.
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Authors
This article explores relationship lending in the small business context: it discusses the roles of entrepreneurial competence and voluntarily disclosed information as determinants of credit access. More specifically, it proposes that the loan manager's evaluation of the information voluntarily disclosed by the entrepreneur is an important complement to publicly available financial data and soft information collected through observation and third parties in framing the loan manager's perception of entrepreneur competence. Further, the article argues that banks charge lower interest rates if the loan manager perceives the entrepreneur to be competent. Econometric analysis based on 433 bank-firm relationships supports these hypothesised relationships. The results imply that entrepreneurs need to communicate their competence effectively to loan managers, and that banks should utilise these personal evaluations as inputs to lending decisions. © The Author(s) 2012.
| Original language | English |
|---|---|
| Journal | International Small Business Journal |
| Volume | 32 |
| Issue number | 5 |
| Pages (from-to) | 525-544 |
| Number of pages | 20 |
| ISSN | 0266-2426 |
| DOIs | |
| Publication status | Published - 08.2014 |
- Management studies - bank lending relationship, competence, entrepreneurship, interest rate
- Entrepreneurship