Credit and Entrepreneurs’ Income

Manthos Delis (), Fulvia Fringuellotti, Maria Iosifidi () and Steven Ongena
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Maria Iosifidi: https://www.mbs-education.com/?post_type=annuaire&p=233817#

No 929, Staff Reports from Federal Reserve Bank of New York

Abstract: Small business entrepreneurs facing credit constraints may experience significantly different future income trajectories compared to their unconstrained counterparts. We quantify this difference using uniquely detailed loan application data and a regression discontinuity design based on a bank’s credit score cutoff rule employed in the loan approval process. Our findings indicate that loan acceptance increases recipients’ real income by eleven percent five years later compared to rejected applicants. This effect persists across a wide range of robustness tests and is primarily driven by the utilization of borrowed funds for profitable investments, as captured by the bank’s ex-ante soft information and the ex-post firm performance. Additionally, within the cohort of accepted applicants, future income is higher for those who were easily accepted compared to marginally accepted borrowers with similar creditworthiness, highlighting the important efficiency effects of loan usage.

Keywords: credit constraints; entrepreneurs’ income; business loans; regression discontinuity design; efficient use of loans (search for similar items in EconPapers)
JEL-codes: D31 E24 G21 O15 (search for similar items in EconPapers)
Pages: 77
Date: 2020-06-01
New Economics Papers: this item is included in nep-fdg and nep-mac
Note: Revised June 2025. Previous titles: “Credit, Income, and Income Inequality," "Credit and Income Inequality," "Credit, Income, and Inequality,” and “Credit and Income”
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