Young Enterprises and Bank Credit Denials | Asian Development Bank

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Young Enterprises and Bank Credit Denials

Publication | May 2018
Young Enterprises and Bank Credit Denials

New enterprises consistently experience higher denials from banks compared with more established businesses.

By employing a sample of 20,956 observations of nonfinancial small and medium-sized enterprises (SMEs) headquartered in the euro area, between 2009 and 2015, we test whether young businesses are more likely to face credit rejections from lenders than their older peers. Our findings appear to confirm our suspicions that new enterprises consistently experience higher denials from banks compared with more established businesses. Such a result is stable to different model specifications and is also confirmed once we handle the issue of sample selection bias potentially affecting our data. Additional tests also reveal that credit constraints are particularly difficult for young SMEs located in Southern and Central Europe, as well as for those operating in the “trade” industry. Overall, our evidence suggests that actions from the policy maker could be desirable to support the viability of credit and, thus, ensure the growth of young businesses in the euro area.

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