Trustworthiness and interest rates: An empirical study of Italian SMEs

Carole Howorth; Andrea Moro

doi:10.1007/s11187-010-9285-4

Trustworthiness and interest rates: An empirical study of Italian SMEs

Carole Howorth^*, Andrea Moro

^*Corresponding author for this work

The York Management School

Research output: Contribution to journal › Article › peer-review

Abstract

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.

Original language	English
Pages (from-to)	161-177
Number of pages	17
Journal	Small Business Economics
Volume	39
Issue number	1
DOIs	https://doi.org/10.1007/s11187-010-9285-4
Publication status	Published - Jul 2012

Keywords

Bootstrap
Debt finance
Interest rates
Relationship lending
Small firms
Trust

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AB - 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.

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Trustworthiness and interest rates: An empirical study of Italian SMEs

Abstract

Keywords

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