Credit Rationing in Small and Micro Enterprises: A Theoretical Analysis

Yuhuan Jin and Sheng Zhang
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Yuhuan Jin: School of Public Policy and Administration, Xi’an Jiaotong University, Xi’an 710049, China
Sheng Zhang: School of Public Policy and Administration, Xi’an Jiaotong University, Xi’an 710049, China

Sustainability, 2019, vol. 11, issue 5, 1-15

Abstract: One of the features of credit markets is that borrowers are sometimes rationed in the amount that they can borrow, which differentiates them from other markets. Small and micro enterprises (SMEs) are more likely to be eliminated than large and medium-sized enterprises under credit rationing. However, SMEs play a significant role in employment creation and growth of gross domestic products in developing countries. So, it is of great significance to study the reasons why SMEs are more vulnerable to credit constraints. By considering the differences in characteristics between SMEs and large and medium-sized enterprises, we established a theoretical model with endogenous enterprise size, and by considering banks’ screening principles before and after the loan approval, we have analyzed the micro-mechanism in which there are significant differences in credit availability between SMEs and large and medium-sized enterprises. Our conclusion indicates that credit rationing in SMEs is the result of the rational choice by banks for the purpose of profit maximization.

Keywords: financing constraint; asymmetric information; small and micro enterprises; credit rationing; big data (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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