Financial literacy and borrower discouragement

David Aristei, Manuela Gallo and Raoul Minetti

Economics Letters, 2024, vol. 243, issue C

Abstract: This study provides first empirical evidence on the impact of entrepreneurs’ financial literacy on borrower discouragement. Using novel survey data on Italian micro-enterprises, we find that less financially knowledgeable entrepreneurs are more likely to be discouraged from applying for new financing, especially due to higher application costs. Our results are robust to several sensitivity checks, including accounting for potential endogeneity. Furthermore, we show that the observed self-rationing mechanism is rather inefficient, suggesting that financial literacy might play a key role in reducing credit market imperfections.

Keywords: Borrower discouragement; Financial literacy; Self-rationing; Micro-enterprises (search for similar items in EconPapers)
JEL-codes: G30 G32 G41 G53 (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003823

DOI: 10.1016/j.econlet.2024.111898

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