Firm-bank trusting relationship and discouraged borrowers
Chao Deng and
Andrea Moro ()
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Ying Tang: Central South University
Chao Deng: Central South University
Andrea Moro: Cranfield University
Review of Managerial Science, 2017, vol. 11, issue 3, 519-541
Abstract Firms can be credit constrained both because banks deny credit when they apply for it and because they refrain from filing for the loan in the first place, anticipating rejection. Interestingly the latter aspect has been only marginally investigated, so far and, no previous research pays attention to firm manager’s trust in the loan manager as a factor that can affect firm’s decision to file for a loan. Present research investigates the role of the trust of firm’s managers in the loan managers as a determinant of not being discouraged from applying for a loan by looking at a strictly randomly selected sample of firms in China. By relying on a structural equation model that investigates both the direct and the mediating role of trust we find that the firm manager’s trust in the loan manager affects the firm’s decision to file for a loan by reducing the firm’s risk of being a discouraged borrower. We also discover that trust mediates the role of the firm manager’s experience and the monitoring activity pursued by the bank.
Keywords: Trust; Small firm; Discouraged borrower; Relationship; Loan availability (search for similar items in EconPapers)
JEL-codes: G40 (search for similar items in EconPapers)
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