Got Rejected? Real Effects of Not Getting a Loan

Tobias Berg

The Review of Financial Studies, 2018, vol. 31, issue 12, 4912-4957

Abstract: Using a lender cutoff rule that generates plausibly exogenous variation in credit supply, I investigate a new channel through which funding shocks are transmitted to the real economy. Based on a sample of more than 15,000 loan applications from small- and medium-sized enterprises, I find that precautionary savings motives can aggravate real effects: low-liquidity firms whose loan applications were rejected increase cash holdings and cut noncash assets in excess of the requested loan amount. These results point to the amplifying effect of precautionary savings motives in the transmission of credit supply shocks. Received December 11, 2016; editorial decision February 22, 2018 by Editor Philip Strahan.

Date: 2018
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