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Problems of Evaluating Small Firms’ Quality as a Reason for Unfavourable Loan Conditions

Ingrid Groessl and Nadine Levratto
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Ingrid Groessl: HWP-Hamburger Universität für Wirtschaft und Politik

Finance from University Library of Munich, Germany

Abstract: The article substantiates the hypothesis that the profitability of small firms is above all determined by qualitative variables. In this respect a low standardization of goods and even more importantly, the high significance of governance structures play a crucial role rendering the quality of the firm’s human capital, the flexibility of its machinery but also externalities of business networks, an appropriate integration of the family into business affairs as examples of qualitative information which also bear a high degree of privacy. Whereas the literature suggests relational contracts as a way how qualitative and private information can be credibly conveyed to the lender, it is shown that even in the German housebank-dominated financial system borrower- lender relationships of the kind recommended by the literature are hardly to be found. Rather, German banks, too, respond to information gaps with unfavourable loan conditions. As an alternative specialized information intermediation is briefly discussed.

Keywords: Small firms financing; rationing; information (search for similar items in EconPapers)
JEL-codes: G (search for similar items in EconPapers)
Pages: 20 pages
Date: 2004-06-24
New Economics Papers: this item is included in nep-cfn and nep-ent
Note: Type of Document - pdf; pages: 20
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Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:wpa:wuwpfi:0406014

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