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

Gharad Bryan, Dean Karlan and Adam Osman

American Economic Review, 2024, vol. 114, issue 9, 2825-60

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 "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 existing practice leads to substantial misallocation. We argue that some entrepreneurs are overoptimistic 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: C45 D22 G21 G32 L25 L26 O16 (search for similar items in EconPapers)
Date: 2024
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Related works:
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)
Working Paper: Big Loans to Small Businesses: Predicting Winners and Losers in an Entrepreneurial Lending Experiment (2021)
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DOI: 10.1257/aer.20220616

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