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Financial literacy and borrower discouragement

Author

Listed:
  • Aristei, David
  • Gallo, Manuela
  • Minetti, Raoul

Abstract

This study provides first empirical evidence on the impact of entrepreneurs’ financial literacy on borrower discouragement. Using novel survey data on Italian micro-enterprises, we find that less financially knowledgeable entrepreneurs are more likely to be discouraged from applying for new financing, especially due to higher application costs. Our results are robust to several sensitivity checks, including accounting for potential endogeneity. Furthermore, we show that the observed self-rationing mechanism is rather inefficient, suggesting that financial literacy might play a key role in reducing credit market imperfections.

Suggested Citation

  • Aristei, David & Gallo, Manuela & Minetti, Raoul, 2024. "Financial literacy and borrower discouragement," Economics Letters, Elsevier, vol. 243(C).
    • Handle: RePEc:eee:ecolet:v:243:y:2024:i:c:s0165176524003823
    DOI: 10.1016/j.econlet.2024.111898
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    More about this item

    Keywords

    Borrower discouragement; Financial literacy; Self-rationing; Micro-enterprises;
    All these keywords.

    JEL classification:

    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G41 - Financial Economics - - Behavioral Finance - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making in Financial Markets
    • G53 - Financial Economics - - Household Finance - - - Financial Literacy

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