The Borrower's Curse: Optimism, Finance and Enterpreneurship

David de Meza and Clive Southey ()

Discussion Papers from University of Exeter, Department of Economics

Abstract: This paper argues that most of the facts charaterising small-scale businesses, including high failure rates, reliance on bank credit rather than equity finance, relatively low interest rate margins, and credit rationing, can be explained by a tendancy for those who are excessively optimistic to dominate new entrants. Drawing on findings in psycology, we model entrants as relatively naive optimisers. Banks on the other hand are viewed as well informed and efficient processors of information.

Keywords: CREDIT; BANKS; INFORMATION (search for similar items in EconPapers)
JEL-codes: D82 (search for similar items in EconPapers)
Pages: 19 pages
Date: 1995
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Citations: View citations in EconPapers (1)

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Journal Article: The Borrower's Curse: Optimism, Finance and Entrepreneurship (1996)
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Persistent link: https://EconPapers.repec.org/RePEc:exe:wpaper:9502

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