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Trust me, I'm an entrepreneur! Can trust help SMEs to gain the credit they need?

Moro, Andrea and Kodwani, Devendra (2010). Trust me, I'm an entrepreneur! Can trust help SMEs to gain the credit they need? In: 5th Workshop on Trust within and Between Organisations, 28-29 January 2010, Madrid, Spain.

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Abstract

Research on relationship lending focuses attention on economic factors which influence the relationships between SMEs' owners/managers and banks but no previous work has focused on the role of trust. Trust is expected to reduce transaction costs and agency costs, reduce the perceived credit risk and, thus, influence credit availability. Trustwor-thiness is associated with three attributes of SME owner managers' namely; ability, be-nevolence and integrity. It is hypothesised that lending managers' assessment of the trustworthiness of SME owner managers affects the ability of SMES to gain the credit. Trustworthiness is hypothesised as positively associated with credit access in contrast to lower trustworthiness which is associated with credit constraint. Use of overdraft is con-sidered here as indicator of credit constraint. The data were obtained from a survey of lending managers from banks in North East Italy. Control variables and a vector of trustworthiness factors were collected on a random sample of borrowers, resulting in a sample of 535 firms. Results from regression analysis found evidence that firms enjoy-ing high level of trust are able to access the credit they need and therefore are less credit constrained. Some implications of these results for banks, owner managers and future research are discussed.

Item Type: Conference Item
Copyright Holders: 2010 The Authors
Keywords: trust; risk; relationship lending; SMEs; credit constrained; needed credit;
Academic Unit/Department: Open University Business School
Item ID: 20188
Depositing User: Andre Moro
Date Deposited: 02 Mar 2010 09:38
Last Modified: 11 Sep 2014 05:00
URI: http://oro.open.ac.uk/id/eprint/20188
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