The Borrower's Curse: Optimism, Finance and Entrepreneurship

David de Meza and Clive Southey ()

Economic Journal, 1996, vol. 106, issue 435, 375-86

Abstract: This paper argues that most of the facts characterizing small-scale businesses, including high failure rates, reliance on bank credit rather than equity finance, relatively low interest rate margins, and credit rationing, can be explained by a tendency for those who are excessively optimistic to dominate new entrants. Drawing on findings in psychology, the authors model entrants as relatively naive optimizers. Banks on the other hand are viewed as well informed and efficient processors of information. Copyright 1996 by Royal Economic Society.

Date: 1996
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Working Paper: The Borrower's Curse: Optimism, Finance and Enterpreneurship (1995)
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