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Credit granting to small firms: A Brazilian case

Felipe Zambaldi, Francisco Aranha, Hedibert Lopes and Ricardo Politi ()

Journal of Business Research, 2011, vol. 64, issue 3, 309-315

Abstract: Transaction costs limit the supply of credit to small and medium-sized firms (SMEs). From a sample of 65,535 SME credit proposals submitted to a large Brazilian bank between January 2004 and September 2006, this research analyzes credit granting decisions. Results suggest that small firms face credit rationing and that low risk credit contracts with liquid collateral are their primary source of credit. Also, the bank captures private information through its lending relationships with borrowers, which affects its credit granting decisions. The findings reveal that the bank under study faces difficulties in expanding the supply of credit to small firms mainly because of cost, collateral-dependency and constraints due to asymmetric information.

Keywords: Credit; rationing; Small; and; medium-sized; enterprises; (SMEs); Small; business; financing; Asymmetric; information; Transaction; costs (search for similar items in EconPapers)
Date: 2011
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Handle: RePEc:eee:jbrese:v:64:y:2011:i:3:p:309-315