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Why do small businesses have difficulty in accessing bank financing?

Harrison, Richard; Li, Youwei; Vigne, Samuel A.; Wu, Yuliang

Authors

Richard Harrison

Samuel A. Vigne

Yuliang Wu



Abstract

This study investigates bank financing to small and medium-size enterprises (SMEs) and evaluates whether the difficulties of SMEs in accessing bank financing during a period of financial crisis are due to a reduction in the supply of credit, or to a decrease in the demand for credit. The results show that the macroeconomic setting matters: demand effects are unlikely to drive the decline in the stock of bank loans, while the supply of credit causes SMEs difficulties in accessing bank credit. During a crisis period, in particular, an increase in the risk of lenders leads to the reduced supply of credit and credit rationing (i.e. the bank lending channel). In a post-crisis period, SMEs with increased risk and decreased profits have great difficulties in securing bank loans (i.e. the borrower balance sheet channel). Taken together, these results suggest that supply effects initially emerge through the bank-lending channel and then shift to the borrower balance sheet channel over a period of financial crisis.

Citation

Harrison, R., Li, Y., Vigne, S. A., & Wu, Y. (2022). Why do small businesses have difficulty in accessing bank financing?. International review of financial analysis, 84, Article 102352. https://doi.org/10.1016/j.irfa.2022.102352

Journal Article Type Article
Acceptance Date Aug 17, 2022
Online Publication Date Aug 21, 2022
Publication Date Nov 1, 2022
Deposit Date Aug 22, 2022
Publicly Available Date Mar 29, 2024
Journal International Review of Financial Analysis
Print ISSN 1057-5219
Publisher Elsevier
Peer Reviewed Peer Reviewed
Volume 84
Article Number 102352
DOI https://doi.org/10.1016/j.irfa.2022.102352
Keywords Bank financing; Financial crises; SME finance
Public URL https://hull-repository.worktribe.com/output/4059558

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