The Effect of Credit Rationing on the Probability of SMEs Investing

Agus Syarip Hidayat and Wee Ching Pok

Review of Development Finance Journal, 2021, vol. 11, issue 2, 18-38

Abstract: This article examines the effect of credit rationing on the probability of borrowers and non-borrowers deciding to invest. Primary data from Indonesia’s automotive small-medium-sized enterprises (SMEs) was analysed using two-stage residual inclusion. We found that credit rationing (weak and strong types), reduces the borrower’s probability of investing and negatively affects firm performance. For non-borrowers, all types of credit rationing (quantity, transaction cost, risk and cultural) adversely affect the probability of investing. Three factors that could reduce credit rationing are: increasing collateral value, establishing risk-sharing schemes, and increasing banks competition. Our findings constitute a new step toward understanding the firms’ risk-sharing schemes to minimize asymmetric information in credit allocation.

Keywords: Credit rationing; SMEs; Probability of investing; Firm performance (search for similar items in EconPapers)
JEL-codes: E51 G11 G20 L25 (search for similar items in EconPapers)
Date: 2021
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Persistent link: https://EconPapers.repec.org/RePEc:afj:journ3:v:11:y:2021:i:2:p:18-38

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