Credit and entrepreneurs’ income

Manthos Delis (), Fulvia Fringuellotti, Maria Iosifidi and Steven Ongena
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Manthos Delis: Audencia Business School
Maria Iosifidi: Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School

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Abstract: Small business entrepreneurs facing credit constraints may experience significantly different future income trajectories compared to their unconstrained counterparts. We quantify this difference using uniquely detailed loan application data and a regression discontinuity design based on a bank's credit score cutoff rule employed in the loan approval process. Our findings indicate that loan acceptance increases recipients' real income by 11 % five years later compared to rejected applicants. This effect persists across a wide range of robustness tests and is primarily driven by the utilization of borrowed funds for profitable investments, as captured by the bank's ex-ante soft information and the ex-post firm performance. Additionally, within the cohort of accepted applicants, future income is higher for those who were easily accepted compared to marginally accepted borrowers with similar creditworthiness, highlighting the important efficiency effects of loan usage.

Keywords: Efficient use of loans; Regression discontinuity design; Business loans; Entrepreneurs’ income; Credit constraints (search for similar items in EconPapers)
Date: 2025-07
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Published in Journal of Financial Intermediation, 2025, 63, pp.101161. ⟨10.1016/j.jfi.2025.101161⟩

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Related works:
Journal Article: Credit and entrepreneurs’ income (2025)
Working Paper: Credit and Entrepreneurs’ Income (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-05236566

DOI: 10.1016/j.jfi.2025.101161

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