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Trustworthiness and interest rates: an empirical study of Italian SMEs

Howorth, Carole and Moro, Andrea (2012). Trustworthiness and interest rates: an empirical study of Italian SMEs. Small Business Economics, 39(1) pp. 161–177.

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Trust is expected to reduce transaction costs and agency costs and thus influence the cost of credit for small businesses. Assessments of trustworthiness are based on the ability, benevolence and integrity of the owner manager. The study examines whether lending managers' assessments of the trustworthiness of small and medium-sized enterprise (SME) owner managers are associated with the interest rate charged. Data were obtained from a survey of lending managers from small banks in North East Italy. Control variables and a vector of trustworthiness factors were collected on a random sample of customers, resulting in data for 365 small firms (74% response rate). Multivariate regression analyses provided evidence of a negative association between trustworthiness and interest rates. Banks, owner managers, policy makers and researchers should recognise the potential of trust to influence lending decisions and behaviour.

Item Type: Journal Article
Copyright Holders: 2010 Springer Science+Business Media, LLC.
ISSN: 0921-898X
Keywords: small firms; debt finance; interest rates; trust; relationship lending; bootstrap
Academic Unit/Department: Open University Business School
Item ID: 21493
Depositing User: Andre Moro
Date Deposited: 20 Jul 2010 11:10
Last Modified: 27 Mar 2015 16:54
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