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How do banks assess entrepreneurial competence? The role of voluntary information disclosure

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journal contribution
posted on 2023-08-30, 13:45 authored by Andrea Moro, Matthias Fink, Teemu Kautonen
This research adds to the literature on relationship lending in the small business context by discussing the roles of entrepreneurial competence and voluntarily disclosed information as determinants of credit access. More specifically, we propose 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 the entrepreneur’s competence. Further, we argue 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 their loan managers’ personal evaluations as inputs to lending decisions.

History

Refereed

  • Yes

Volume

32

Issue number

5

Page range

525-544

Publication title

International Small Business Journal

ISSN

1741-2870

Publisher

SAGE

File version

  • Accepted version

Language

  • eng

Legacy posted date

2013-05-28

Legacy creation date

2018-12-07

Legacy Faculty/School/Department

ARCHIVED Lord Ashcroft International Business School (until September 2018)

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