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Can distance-related information asymmetries in credit markets be overcome with contract design and credit scoring models? To answer this question, we explore differences in foreign and domestic banks' credit contract terms and pricing models. Using a sample of firms that borrow from both domestic and foreign banks in the same month, we show that foreign banks are more likely to demand collateral and grant shorter maturity loans than domestic banks. Foreign banks also base their pricing on internal credit ratings and collateral pledges, while domestic banks price according to the length, depth, and breadth of their relationship with a firm. These findings confirm that foreign banks can overcome informational disadvantages using contract design and credit scoring models. However, we also show that there are limitations, with foreign banks facing higher default rates and lower returns on lending if not using collateral and short maturity as disciplining tools. This paper was accepted by Amit Seru, finance.

This paper focuses on the impact of financial fragmentation on small and medium enterprises’ (SMEs) access to finance. We combine country-level data on financial fragmentation and the ECB’s SAFE (Survey on the Access to Finance of Enterprises) data for 12 European Union (EU) countries over 2009–2016. Our findings indicate that an increase in financial fragmentation not only raises the probability of all firms to be rationed but also to be charged higher loan rates; in addition, it increases the likelihood of borrower discouragement and it impairs firms’ perceptions of the future availability of bank funds. Less creditworthy firms are even more likely to become credit rationed, suggesting a flight to quality effect in lending. However, our study also documents a potential adverse effect of increasing bank market power resulting from greater integration. This suggests that financial integration could impair firms’ financing, if not accompanied by policy initiatives aimed at maintaining an optimal level of competition in the banking sector.

This paper aims to analyze access to bank financing by small firms belonging to business groups compared to independent firms. We consider Italian manufacturing firms during the severe credit-crunch during 2010–2012 caused by the financial crisis and subsequent domestic recession. We expect belonging to a business group to facilitate access to bank financing as the result of two different mechanisms: (i) the implicit guarantee provided by group belonging (affiliation effect) and (ii) the transfer of resources via the internal capital market (portfolio effect). The empirical evidence confirms our hypotheses. Belonging to a business group facilitates access to bank financing, while the presence of an internal capital market, which substitutes for both the decision to obtain bank financing and the amount borrowed, makes firms that are part of a business group less dependent than independent firms on this type of financing.

Housing industry is one of the major threats to global environment and resource depletion. Particularly in China, it is regarded as a major challenge due to massive population growth. The most common barriers involve; economic barriers and environmental barriers. Therefore, to promote sustainable housing development, the management of these barriers is most crucial. This study is an attempt to overcome these barriers with the help of financial institutions in the context of China. The sample of the study are construction sector employees which are selected through simple random sampling method. Partial Least Square (PLS) is employed as statistical tool to analyze the primary data. Results revealed the positive role of financial institutions to overcome the challenges related to the economic barriers and environmental barriers. Financing from banks for the sustainable housing schemes can reduce the economic barriers and help to fulfil the sustainable housing criteria. Similarly, the environment requirements can also be achieved through environmental policy developed by the banks in China. This study recommended the Chinese government to promote sustainable hosing development through the promotion of bank financing and implementation of banks environmental policies. Please view correction statement: Corrigendum: Sustainable housing development in China: does financial institutions overcome the risks and challenges to sustainable housing? First published online 14 March 2024

This study aimed to explore the relationship between religious beliefs (RB), information asymmetry (INFO_ASY), and bank financing (BFR). This study used survey research to collect data from the owners of micro, small, and medium enterprises (MSMEs) located in Punjab, Haryana, Maharashtra, Rajasthan, Himachal Pradesh, and the Utter Pradesh States. We asked the research participants about their perceptions of the relationship between religious beliefs, INFO_ASY, and BFR. The empirical analysis shows that RB reduces INFO_ASY between MSME owners and lenders. Results also show that a decrease in INFO_ASY reduces BFR for MSMEs. The results contribute to the literature on the relationship between religious beliefs, INFO_ASY, and BFR. Financial institutions, owners of MSMEs, financial management consultants, and other stakeholders may find results beneficial to decrease BFR. In addition, academia may find the results helpful in further studies on the relationship between religious beliefs, INFO_ASY, and BFR.

Our study identifies regional traits associated with small business viability, paying particular attention to bank lending to minority-owned firms. Although creditworthy minority business enterprises (MBEs) have less access to bank financing than similar White-owned firms, they have increased their nationwide employee numbers substantially since 2002, more so indeed than White-owned firms. The discouraged borrower incidence among creditworthy MBEs, nonetheless, is quite high. Given their limited access to financing, the dynamism displayed by these firms is surprising. To link regional characteristics to bank lending policies, local economic well-being measures and racial intolerance levels are used to identify areas where banks participate in Community Reinvestment Act (CRA) agreements, a proxy for their willingness to disregard owner race and firm geographic location when financing firms. We find that regional prosperity is positively linked to CRA agreement presence, while a legacy of institutionalized racism is negatively linked. We next explore whether the presence of local CRA agreements is linked to relatively fewer discouraged small business borrowers. The incidence of creditworthy borrowers discouraged from seeking bank financing drops significantly when CRA agreements are present locally.Plain English SummaryAccess to bank financing, a key growth determinant for Black and Latino-owned firms, is most accessible in prosperous metro areas with large minority populations and much less so in those with an entrenched heritage of institutionalized racism. Minority-owned firms doubled their nationwide paid employee numbers from 2002 to 2018, while White-owned firms generated only a 5% increase. Increased bank lending facilitated their rapid growth. Our objective is to identify regional traits associated with small business viability, paying particular attention to the ability of minority-owned firms to obtain bank financing. To link regional characteristics to bank policies, local economic well-being measures and racial intolerance levels are used to identify areas where banks are inclined to employ fair lending practices. Our fair lending proxy measure is the willingness of banks to participate in CRA agreements. Local customs and traditions shape bank acceptance or rejection of these agreements. Most banks in metro areas where institutional racism is deeply embedded do not participate in CRA agreements, while in prosperous areas with large minority populations, most do. The incidence of creditworthy borrowers discouraged from seeking bank financing drops significantly where CRA agreements are present locally.

In this paper, we discuss how a capital-constrained retailer determines his optimal advertising/ordering policy and selects his financing mode when he faces the following modes: no financing service, bank financing, and supplier/mixed financing. For each mode, we construct an optimization model and present a method for how the retailer determines his corresponding optimal advertising and ordering policies in the terms of his initial capital level. Furthermore, we derive the conditions of retailer selecting the optimal financing mode based on both his initial capital level and the interest rates of the financing services. We show that when the retailer is relatively “poor,” he prefers bank financing mode if the bank interest rate is lower than the supplier, otherwise mixed financing mode; when he is moderately “rich,” he only selects supplier financing mode if the bank interest rate is greater than a threshold value and otherwise bank financing mode; however, when he is relatively “rich,” he always chooses bank financing mode even if the bank interest rate is higher than the supplier. We conduct numerical studies to illustrate the theoretical results and find adopting financing service significantly improves the retailer’s performance especially when he has relatively low initial capital level.

Purpose: The research aims to shed light on the financing of Small and Medium-Sized Enterprises (SMEs) in Dhi-Qar province and the role of private banks in that.   Theoretical framework: The theoretical framework of study focuses on the defining of (SMEs), the method of financing the (SMEs) which included the operating loans and investment loans, the obstacles to financing, and the factors of success and failure in SMEs also included in theoretical framework.   Design/methodology/approach: The study tool for the practical side was a questionnaire, and the study relied on the descriptive analytical approach, where the questionnaire was distributed (335) questionnaire on the owners of (SMEs) represented (Chamber of Commerce, The Business Federation, and the Chamber of Industry) and the number of questionnaires valid for analysis was (300) and the statistical program was used (SPSS.v.23), Research, Practical & Social implications:   Findings: The study reached the most important conclusions, including the inability of owners of (SMEs) to provide the required guarantees from private banks, and the weak ability to Submit the required financial statements for which the loan is granted, and the amount of loans granted by the banks is not compatible with the capital and operational needs of the owners of (SMEs).   Originality/value: Highlight in the necessity of finding a mechanism to financially support (SMEs) and urge banks and financial institutions to encourage them to support these enterprises.

Using data for 91 large banks from 45 countries, this paper finds that foreign, domestic private, and government-owned banks use different lending technologies and organizational structures for SME financing. The extent, type, and pricing of SME loans, however, is not strongly correlated with lending technologies and organizational structures, suggesting that SME financing need not be based only on “relationship lending”. Consistent with these results, we find few significant differences in the extent, type, and pricing of SME loans across bank types. Instead, we find significant differences across developed and developing countries, driven by differences in the institutional and legal environment.

Using micro-data on small- and mediumsized enterprises, this paper empirically investigates the \"signalling hypothesis\" formulated on the role of trade credit (Biais and Gollier in Rev Financ Stud 10: 903-937, 1997; Burkart and Ellingsen in Am Econ Rev 94: 569-590, 2004). The research method adopted allows evaluation of the impact of suppliers' credit on bank debt accounting for the strength (duration) of bank-firm relationships. Our main finding is that trade credit seems to have an information content for banks, especially when the latter do not dispose of adequate (soft) information on firms, which is likely the case at the beginning stages of bank-firm relationships. An implication of our results is that the availability of suppliers credit might be crucial to foster access to institutional funding for new firms entering the market. Our evidence also suggests that banks seem to consider suppliers a reliable source of information on firms' financial conditions even after several years of lending relationships.