Credit rationing prevalence for Eurozone firms

What else lies behind the credit rationing? Exploring the issue of employment

“…According to Jappelli (1990), firms are defined as discouraged borrowers when they do not apply for a loan due to fear of possible rejection. In a relative short note, we need to highlight that this strand of literature, has received an overly low attention and only recent studies have explored the discouraged borrowers in credit dynamics and documented its importance in the credit markets (Levenson and Willard, 2000; Chakravarty and Yilmazer, 2009; Popov and Udell, 2010; Freel et al , 2012; Anastasiou et al , 2022; Kallandranis et al , 2023). In this context, discouraged firms are prevalent in banking systems that: credit supply is limited; banks cannot screen appropriately the firms applying; and the application cost for firms is positive (Kon and Storey, 2003) and significant relative to its estimated chances of the loan being accepted. …”

“…Within the concept of the previously reported factors, the conventional issue of credit rationing becomes even more pertinent for small- and medium-sized enterprises (hereafter SMEs) as, due to their size, they experience challenges related to informational opacity and lack of substantial collateral, making them more susceptible to credit rationing problems (Stiglitz and Weiss, 1981; Jaffee and Stiglitz, 1990; Liberti and Petersen, 2019, Kallandranis et al , 2023 etc.). The decline in SME’s lending has received much attention from researchers and policymakers as a consequence of its potential link to important economic measurements such as investment and unemployment rates.…”