Big Loans to Small Businesses: Predicting Winners and Losers in an Entrepreneurial Lending Experiment

Gharad T. Bryan, Dean Karlan and Adam Osman

No 29311, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We experimentally study the impact of relatively large enterprise loans in Egypt. Larger loans generate small average impacts, but machine learning using psychometric data reveals that ”top-performers” (those with the highest predicted treatment effects) substantially increase profits, while profits drop for poor-performers. The large differences imply that lender credit allocation decisions matter for aggregate income, yet we find that existing practice leads to substantial misallocation. We argue that some entrepreneurs are over-optimistic and squander the opportunities presented by larger loans by taking on too much risk, and show the promise of allocations based on entrepreneurial type relative to firm characteristics.

JEL-codes: D22 D24 L26 M21 O12 O16 (search for similar items in EconPapers)
Date: 2021-09
New Economics Papers: this item is included in nep-big, nep-cfn, nep-cwa, nep-ent, nep-exp, nep-fdg, nep-mfd and nep-sbm
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Related works:
Journal Article: Big Loans to Small Businesses: Predicting Winners and Losers in an Entrepreneurial Lending Experiment (2024)
Working Paper: Big loans to small businesses: predicting winners and losers in an entrepreneurial lending experiment (2024)
Working Paper: Big Loans to Small Businesses: Predicting Winners and Losers in an Entrepreneurial Lending Experiment (2022)
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