Trust and the Demand for Personal Collateral in SME - Bank Relationships

Andrea Moro, Mike R. Lucas and Devendra Kodwani
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Andrea Moro: University of Leicester, UK
Mike R. Lucas: The Open University Business School, UK
Devendra Kodwani: The Open University Business School, UK

Journal of Entrepreneurial Finance, 2012, vol. 16, issue 1, 57-79

Abstract: Previous research on relationship lending has paid very little attention to the role of trust. Trust might be ex-pected to reduce agency costs, perceived credit risk and thus the request for personal collateral. Trustworthiness is associated with three attributes of SME owner/managers’: ability, benevolence and integrity. We hypothe-sised that loan managers’ assessment of the trustworthiness of owner/managers is negatively associated with the personal collateral demanded by banks. Using the quantitative and qualitative data about 457 SMEs-bank rela-tionships in North East Italy, we tested this hypothesis. The results show that trust has a minor role in reducing the request of collateral.

Keywords: Trust; Relationship lending; Relationship Banking; SME; Personal Collateral (search for similar items in EconPapers)
JEL-codes: D82 G21 M13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (2)

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