Got rejected? Real effects of not getting a loan

Category: Finance Seminar
When: 17 November 2015
, 16:15
 - 17:30
Where: House of Finance, E01 Deutsche Bank

Using a lender cut-off rule that generates plausibly exogenous variation in credit supply, I analyze real effects of loan rejections in a sample of small and medium sized enterprises. I find that loan rejections reduce asset growth, investments, and employment, and these effects are concentrated among low liquidity firms. Precautionary savings motives aggravate real effects: firms whose loan applications got rejected increase cash holdings and cut non-cash assets in excess of the requested loan amount. These results point to the amplifying effect of precautionary savings motives in the transmission of credit supply shocks.