A Disequilibrium Model for Estimating Credit Rationing in Private Small and Medium Enterprises: The Role of Size and Ownership Concentration
Maria-Gaia Soana, Giovanni Verga, Gino Gandolfi
Using a large panel data set of Italian private SMEs, this paper estimates a disequilibrium model of demand and supply of credit in the period 2007-2011. We find that private SMEs were credit rationed during the crisis. On the demand side, firms which requested more bank credit were smaller firms, showing higher short and long term financing needs, fewer available internal sources, fewer substitutes for bank finance and lower cost of bank credit. Economic sentiment exerts a positive effect on the demand for loans. On the supply side, loans were reduced more to smaller and riskier firms. Banks preferred to allocate new credit to SMEs which could offer collateral and showed higher increase in sales. Willingness to lend and credit deterioration have respectively a positive and a negative impact on the bank supply of credit. Finally, banks appear to consider a strong ownership concentration a negative element in willingness to lend.
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