Investigating the Determinants of Credit Availability for SMEs: Does Trust Matter?
Posted: 22 Jan 2010
Date Written: January 21, 2010
Abstract
Research on relationship lending has focused attention on economic factors. No previous work, however, has examined the role of trust in lender-borrower relationships. Trust may be expected to reduce transaction costs and agency costs, and thereby influence the availability of credit (i.e. increase the willingness of lenders to grant credit) to firms.
Previous research has suggested that the trustworthiness of business borrowers is believed to depend on their entrepreneurial ability, benevolence and integrity. The research question tested by the research reported on in this paper, is that lenders’ assessment of the trustworthiness of SME owner/managers is positively related to credit granted.
For the purpose of this research, data were obtained from a survey of lending managers from banks in North East Italy. Information on variables likely to affect trust (via the intervening variables of perceived ability, benevolence and integrity of borrowers) was collected from a random sample of banks customers, comprising in total 535 SMEs. Multivariate regression analysis provided evidence to support the proposition that trust has a significant impact on credit granted to SMEs. The findings have important implications for banks, SME owner managers and future research.
Keywords: Trust, Relationship lending, SMEs, Credit Access
JEL Classification: G21, M14
Suggested Citation: Suggested Citation