Personality-based selection of entrepreneurial borrowers to reduce credit risk: Two studies on prediction models in low- and high-stakes settings in developing countries
Research output: Journal contributions › Journal articles › Research › peer-review
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In: Journal of Organizational Behavior, Vol. 39, No. 5, 06.2018, p. 612-628.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Personality-based selection of entrepreneurial borrowers to reduce credit risk
T2 - Two studies on prediction models in low- and high-stakes settings in developing countries
AU - Dlugosch, Thorsten
AU - Klinger, Bailey
AU - Frese, Michael
AU - Klehe, Ute
PY - 2018/6
Y1 - 2018/6
N2 - Small business growth is critical for economic development and poverty reduction in emerging markets, yet there remains an over $2 trillion gap in financing these entrepreneurs. This study explores the potential of personality assessments to help lenders solve this problem and lend to more entrepreneurs and contributes to psychological selection research by examining the effect of high versus low stakes on response distortions and predictive validity in a new area—entrepreneurship with a new dependent variable—paying back credit. Results of Study 1 show that personality assessments are indeed related to credit risk, but response patterns depend significantly on whether or not the assessment is taken as a mandatory part of the credit application (high stakes) or as an optional research survey after the credit has already been provided (low stakes), and predictive relationships do not generalize between these situations. In Study 2, the distributions of personality dimensions relevant for entrepreneurs applying for a credit—conscientiousness, extraversion, and integrity—are shown to be different for applicants when in high- versus low-stakes settings. These findings convey several implications for the research on and practice of lending to entrepreneurs in emerging markets and offer new directions for future research.
AB - Small business growth is critical for economic development and poverty reduction in emerging markets, yet there remains an over $2 trillion gap in financing these entrepreneurs. This study explores the potential of personality assessments to help lenders solve this problem and lend to more entrepreneurs and contributes to psychological selection research by examining the effect of high versus low stakes on response distortions and predictive validity in a new area—entrepreneurship with a new dependent variable—paying back credit. Results of Study 1 show that personality assessments are indeed related to credit risk, but response patterns depend significantly on whether or not the assessment is taken as a mandatory part of the credit application (high stakes) or as an optional research survey after the credit has already been provided (low stakes), and predictive relationships do not generalize between these situations. In Study 2, the distributions of personality dimensions relevant for entrepreneurs applying for a credit—conscientiousness, extraversion, and integrity—are shown to be different for applicants when in high- versus low-stakes settings. These findings convey several implications for the research on and practice of lending to entrepreneurs in emerging markets and offer new directions for future research.
KW - Entrepreneurship
KW - Business psychology
KW - credit risk
KW - developing countries
KW - psychometrics
KW - response distortion
UR - http://www.scopus.com/inward/record.url?scp=85048342594&partnerID=8YFLogxK
U2 - 10.1002/job.2236
DO - 10.1002/job.2236
M3 - Journal articles
VL - 39
SP - 612
EP - 628
JO - Journal of Organizational Behavior
JF - Journal of Organizational Behavior
SN - 0894-3796
IS - 5
ER -