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The Effect of Credit Rationing on the Probability of SMEs Investing

Author

Listed:
  • Agus Syarip Hidayat
  • Wee Ching Pok

    (Indonesian Institute of Sciences (LIPI)/ National Research and Innovation Agency (BRIN), Indonesia)

Abstract

This article examines the effect of credit rationing on the probability of borrowers and non-borrowers deciding to invest. Primary data from Indonesia’s automotive small-medium-sized enterprises (SMEs) was analysed using two-stage residual inclusion. We found that credit rationing (weak and strong types), reduces the borrower’s probability of investing and negatively affects firm performance. For non-borrowers, all types of credit rationing (quantity, transaction cost, risk and cultural) adversely affect the probability of investing. Three factors that could reduce credit rationing are: increasing collateral value, establishing risk-sharing schemes, and increasing banks competition. Our findings constitute a new step toward understanding the firms’ risk-sharing schemes to minimize asymmetric information in credit allocation.

Suggested Citation

  • Agus Syarip Hidayat & Wee Ching Pok, 2021. "The Effect of Credit Rationing on the Probability of SMEs Investing," Review of Development Finance Journal, Chartered Institute of Development Finance, vol. 11(2), pages 18-38.
    • Handle: RePEc:afj:journ3:v:11:y:2021:i:2:p:18-38
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    File URL: https://journals.co.za/doi/abs/10.10520/ejc-rdfin_v11_n2_a2
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    More about this item

    Keywords

    Credit rationing; SMEs; Probability of investing; Firm performance;
    All these keywords.

    JEL classification:

    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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