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Entrepreneurship over Time: Measures of Activity and Recent Changes in the US: 1993-2002

Author

Listed:
  • Andrew Burke
  • Aoife Hanley

Abstract

The paper investigates the relationship between bank interest rate margins and collateral for loans issued to new ventures. The analysis finds a convex U-shaped relationship. The results indicate that while provision of collateral initially reduces bank exposure to risk (through security, more optimal levels of capital and lower moral hazard among entrepreneurs) that beyond a point the positive risk-wealth association gives rise to greater risk taking propensity among entrepreneurs and ultimately higher interest rates. This indicates that a lender's pricing policy may even somewhat help to level the competitive playing field between ventures launched by higher and moderately wealthy entrepreneurs.

Suggested Citation

  • Andrew Burke & Aoife Hanley, 2004. "Entrepreneurship over Time: Measures of Activity and Recent Changes in the US: 1993-2002," Papers on Entrepreneurship, Growth and Public Policy 2004-45, Max Planck Institute of Economics, Entrepreneurship, Growth and Public Policy Group.
    • Handle: RePEc:esi:egpdis:2004-45
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    File URL: ftp://papers.econ.mpg.de/egp/discussionpapers/2004-45.pdf
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    More about this item

    Keywords

    asymmetric information; bank lending; credit constraints;
    All these keywords.

    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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