Defaults in bank loans to SMEs during the financial crisis

Fábio Dias Duarte (), Ana Paula Matias Gama () and Mohamed Azzim Gulamhussen ()
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Fábio Dias Duarte: IPP-ESTG & NECE
Ana Paula Matias Gama: UBI & NECE
Mohamed Azzim Gulamhussen: ISCTE-IUL Business School & Vlerick Business School

Small Business Economics, 2018, vol. 51, issue 3, No 6, 608 pages

Abstract: Abstract We investigate the role of (business) collateral and (personal) guarantees alongside small and medium enterprise (SME), lending bank and loan characteristics, macroeconomic conditions, sectors, and geographic locations while controlling for unobserved time effects in predicting default at the peak of the financial crisis. First, we find a positive relation between collateral and default, and a negative relation between guarantees and default. Second, we find a negative relation between the joint influence of collateral and high credit score, and a positive relation between the joint influence of collateral and low credit score and default. We also find a negative relation between the joint influence of guarantees and high credit score. These findings are relevant for SME policies aimed at facilitating access to credit, reducing the cost of borrowing, and decreasing default; risk management of banks; and the application of theories of financial economics in the context of a financial crisis.

Keywords: Corporate financing decisions; Financial crisis; Government policy and regulation; Banks (search for similar items in EconPapers)
JEL-codes: D82 G01 G18 G20 (search for similar items in EconPapers)
Date: 2018
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (17)

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DOI: 10.1007/s11187-017-9944-9

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