IDEAS home Printed from https://ideas.repec.org/p/zbw/daredp/1702.html
   My bibliography  Save this paper

Truth and consequences: Bogus pipeline experiment in informal small business lending

Author

Listed:
  • Römer, Ulf
  • Weber, Ron
  • Mußhoff, Oliver
  • Turvey, Calcum G.

Abstract

The prevention of asymmetric information plays a major role in successful small business lending. The purpose of this research is to determine if small business applicants report their income information correctly when requesting a loan. Therefore, a randomized controlled trial bogus pipeline experiment was set up during a typical cash-flow analysis of a bank for small businesses in the Philippines. Results indicate that loan applicants of the treatment group reported a lower income, an effect which is most pronounced in the lowest income percentile. Moreover, our analyses reveal higher loan delinquencies in the control group.

Suggested Citation

  • Römer, Ulf & Weber, Ron & Mußhoff, Oliver & Turvey, Calcum G., 2017. "Truth and consequences: Bogus pipeline experiment in informal small business lending," DARE Discussion Papers 1702, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    • Handle: RePEc:zbw:daredp:1702
    as

    Download full text from publisher

    File URL: https://www.econstor.eu/bitstream/10419/156679/1/883572125.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Thorsten Beck & Patrick Behr & Andre Guettler, 2013. "Gender and Banking: Are Women Better Loan Officers?," Review of Finance, European Finance Association, vol. 17(4), pages 1279-1321.
    2. Vogelgesang, Ulrike, 2003. "Microfinance in Times of Crisis: The Effects of Competition, Rising Indebtedness, and Economic Crisis on Repayment Behavior," World Development, Elsevier, vol. 31(12), pages 2085-2114, December.
    3. Shawn Cole & Martin Kanz & Leora Klapper, 2015. "Incentivizing Calculated Risk-Taking: Evidence from an Experiment with Commercial Bank Loan Officers," Journal of Finance, American Finance Association, vol. 70(2), pages 537-575, April.
    4. Freese, Von Jan & Steinmann, Horst-Henning, 2005. "Ergebnisse des Projektes „Randstreifen als Strukturelemente in der intensiv genutzten Agrarlandschaft Wolfenbüttels“," Department of Agricultural and Rural Development (DARE) Discussion Papers 187346, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    5. Mersland, Roy & Strøm, R. Øystein, 2010. "Microfinance Mission Drift?," World Development, Elsevier, vol. 38(1), pages 28-36, January.
    6. Schneider, Thea & Hartmann, Laura & Spiller, Achim, 2015. "Luxusmarketing bei Lebensmitteln: Eine empirische Studie zu Dimensionen des Luxuskonsums in Deutschland," DARE Discussion Papers 1502, Georg-August University of Göttingen, Department of Agricultural Economics and Rural Development (DARE).
    7. Garciá-Germán, Sol & Romeo, Alessandro & Magrini, Emiliano & Balilé, Jean, 2016. "The impact of food price shocks on weight loss: Evidence from the adult population of Tanzania," Department of Agricultural and Rural Development (DARE) Discussion Papers 260778, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    8. Chun Chang & Guanmin Liao & Xiaoyun Yu & Zheng Ni, 2014. "Information from Relationship Lending: Evidence from Loan Defaults in China," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 46(6), pages 1225-1257, September.
    9. Freese, Von Jan & Steinmann, Horst-Henning, 2005. "Ergebnisse des Projektes „Randstreifen als Strukturelemente in der intensiv genutzten Agrarlandschaft Wolfenbüttels“," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187346, German Association of Agricultural Economists (GEWISOLA).
    10. Jochen Meyer & Stephan von Cramon‐Taubadel, 2004. "Asymmetric Price Transmission: A Survey," Journal of Agricultural Economics, Wiley Blackwell, vol. 55(3), pages 581-611, November.
    11. Heß, Sebastian & Bergmann, Holger & Sudmann, Lüder, 2006. "Die Förderung alternativer Energien - eine kritische Bestandsaufnahme," Department of Agricultural and Rural Development (DARE) Discussion Papers 187446, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    12. Hermes, Niels & Lensink, Robert & Meesters, Aljar, 2011. "Outreach and Efficiency of Microfinance Institutions," World Development, Elsevier, vol. 39(6), pages 938-948, June.
    13. Just, David R. & Wansink, Brian & Turvey, Calum G., 2009. "Biosecurity, Terrorism, and Food Consumption Behavior: Using Experimental Psychology to Analyze Choices Involving Fear," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 34(1), pages 1-18, April.
    14. Dean Karlan & Jonathan Zinman, 2009. "Observing Unobservables: Identifying Information Asymmetries With a Consumer Credit Field Experiment," Econometrica, Econometric Society, vol. 77(6), pages 1993-2008, November.
    15. Robert Cull & Asli Demirguç-Kunt & Jonathan Morduch, 2007. "Financial performance and outreach: a global analysis of leading microbanks," Economic Journal, Royal Economic Society, vol. 117(517), pages 107-133, February.
    16. Niels Hermes, 2014. "Does microfinance affect income inequality?," Applied Economics, Taylor & Francis Journals, vol. 46(9), pages 1021-1034, March.
    17. Heß, Sebastian & Bergmann, Holger & Sudmann, Lüder, 2006. "Die Förderung alternativer Energien - eine kritische Bestandsaufnahme," 54th Annual Conference, Goettingen, Germany, September 17-19, 2014 187446, German Association of Agricultural Economists (GEWISOLA).
    18. Douglas D. Davis & Charles A. Holt, 1992. "Introduction to Experimental Economics," Introductory Chapters, in: Experimental Economics, Princeton University Press.
    19. Karlan, Dean S. & Zinman, Jonathan, 2012. "List randomization for sensitive behavior: An application for measuring use of loan proceeds," Journal of Development Economics, Elsevier, vol. 98(1), pages 71-75.
    20. Ron Weber & Oliver Musshoff, 2012. "Is agricultural microcredit really more risky? Evidence from Tanzania," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 72(3), pages 416-435, November.
    21. Petersen, Mitchell A & Rajan, Raghuram G, 1994. "The Benefits of Lending Relationships: Evidence from Small Business Data," Journal of Finance, American Finance Association, vol. 49(1), pages 3-37, March.
    22. Bonetti, Shane, 1998. "Experimental economics and deception," Journal of Economic Psychology, Elsevier, vol. 19(3), pages 377-395, June.
    23. Berger, Allen N & Udell, Gregory F, 1995. "Relationship Lending and Lines of Credit in Small Firm Finance," The Journal of Business, University of Chicago Press, vol. 68(3), pages 351-381, July.
    24. Rocholl, Jörg & Puri, Manju & Steffen, Sascha, 2011. "On the importance of prior relationships in bank loans to retail customers," Working Paper Series 1395, European Central Bank.
    25. Simon Cornée & David Masclet & Gervais Thenet, 2012. "Credit Relationships: Evidence from Experiments with Real Bankers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 957-980, August.
    26. Chang, C. & Liao, G. & Yu, X. & Ni, Z., 2009. "Information from Relationship Lending : Evidence from China," Other publications TiSEM 9ef448b0-b647-4a71-96e9-5, Tilburg University, School of Economics and Management.
    27. Alberto Bennardo & Marco Pagano & Salvatore Piccolo, 2015. "Multiple Bank Lending, Creditor Rights, and Information Sharing," Review of Finance, European Finance Association, vol. 19(2), pages 519-570.
    28. Calum Turvey & Xiaolan Xu & Rong Kong & Ying Cao, 2014. "Attitudinal Asymmetries and the Lender-Borrower Relationship: Survey Results on Farm Lending in Shandong, China," Journal of Financial Services Research, Springer;Western Finance Association, vol. 46(2), pages 115-135, October.
    29. Cenni, Stefano & Monferrà, Stefano & Salotti, Valentina & Sangiorgi, Marco & Torluccio, Giuseppe, 2015. "Credit rationing and relationship lending. Does firm size matter?," Journal of Banking & Finance, Elsevier, vol. 53(C), pages 249-265.
    30. Stiglitz, Joseph E & Weiss, Andrew, 1981. "Credit Rationing in Markets with Imperfect Information," American Economic Review, American Economic Association, vol. 71(3), pages 393-410, June.
    31. Childs, Jason, 2012. "Gender differences in lying," Economics Letters, Elsevier, vol. 114(2), pages 147-149.
    32. Beatriz Armendáriz de Aghion & Jonathan Morduch, 2000. "Microfinance Beyond Group Lending," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 8(2), pages 401-420, July.
    33. Hanmer, Michael J. & Banks, Antoine J. & White, Ismail K., 2014. "Experiments to Reduce the Over-Reporting of Voting: A Pipeline to the Truth," Political Analysis, Cambridge University Press, vol. 22(1), pages 130-141, January.
    34. McIntosh, Craig & Wydick, Bruce, 2005. "Competition and microfinance," Journal of Development Economics, Elsevier, vol. 78(2), pages 271-298, December.
    35. Elizabeth Dunn, 2002. "It pays to know the customer: addressing the information needs of client-centered MFIs," Journal of International Development, John Wiley & Sons, Ltd., vol. 14(3), pages 325-334.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ulf Römer & Oliver Mußhoff & Ron Weber & Calum Turvey, 2017. "Wie ehrlich sind Kunden von Mikrofinanzinstituten? Ein Bogus-Pipeline-Experiment zur Untersuchung asymmetrischer Information im Mikrofinanzsektor auf den Philippinen [How Honest are Clients of Micr," Schmalenbach Journal of Business Research, Springer, vol. 69(2), pages 153-172, June.
    2. Ulf Römer & Oliver Mußhoff & Ron Weber & Calum G. Turvey, 2018. "Assessing the Reliability of Self‐reported Income Information in Informal Small Business Lending through a Bogus Pipeline Experiment," Journal of Agricultural Economics, Wiley Blackwell, vol. 69(3), pages 726-738, September.
    3. Gutiérrez-Nieto, Begoña & Serrano-Cinca, Carlos, 2019. "20 years of research in microfinance: An information management approach," International Journal of Information Management, Elsevier, vol. 47(C), pages 183-197.
    4. Cozarenco, Anastasia & Szafarz, Ariane, 2020. "The regulation of prosocial lending: Are loan ceilings effective?," Journal of Banking & Finance, Elsevier, vol. 121(C).
    5. Isabelle Agier & Ariane Szafarz, 2013. "Subjectivity in credit allocation to micro-entrepreneurs: evidence from Brazil," Small Business Economics, Springer, vol. 41(1), pages 263-275, June.
    6. repec:luc:wpaper:18-04 is not listed on IDEAS
    7. Ashim Kumar Kar & Ranjula Bali Swain, 2018. "Competition, Performance and Portfolio Quality in Microfinance Markets," The European Journal of Development Research, Palgrave Macmillan;European Association of Development Research and Training Institutes (EADI), vol. 30(5), pages 842-870, December.
    8. Robert Cull & Asli Demirgüç-Kunt & Jonathan Morduch, 2014. "Banks and Microbanks," Journal of Financial Services Research, Springer;Western Finance Association, vol. 46(1), pages 1-53, August.
    9. Choudhary, M. Ali & Jain, Anil K., 2020. "How public information affects asymmetrically informed lenders: Evidence from a credit registry reform," Journal of Development Economics, Elsevier, vol. 143(C).
    10. Ulf Römer & Oliver Musshoff, 2017. "Can agricultural credit scoring for microfinance institutions be implemented and improved by weather data?," Agricultural Finance Review, Emerald Group Publishing Limited, vol. 78(1), pages 83-97, December.
    11. Belaid, Faiçal & Boussaada, Rim & Belguith, Houda, 2017. "Bank-firm relationship and credit risk: An analysis on Tunisian firms," Research in International Business and Finance, Elsevier, vol. 42(C), pages 532-543.
    12. Tristan Caballero-Montes, 2023. "Integrating market conditions into regulatory decisions on microfinance interest rates: does competition matter?," Annals of Finance, Springer, vol. 19(2), pages 201-232, June.
    13. Elisabeth Vollmer & Daniel Hermann & Oliver Musshoff, 2019. "The disposition effect in farmers’ selling behavior: an experimental investigation," Agricultural Economics, International Association of Agricultural Economists, vol. 50(2), pages 177-189, March.
    14. Hubert Tchakoute Tchuigoua, 2023. "Loan officer gender and loan repayment performance. Evidence from greenfield microfinance institutions in Cameroon1," Annals of Public and Cooperative Economics, Wiley Blackwell, vol. 94(2), pages 519-548, June.
    15. Tchakoute-Tchuigoua, Hubert, 2012. "Active risk management and loan contract terms: Evidence from rated microfinance institutions," The Quarterly Review of Economics and Finance, Elsevier, vol. 52(4), pages 427-437.
    16. Cornée, Simon & Masclet, David, 2022. "Long-term relationships, group lending, and peer monitoring in microfinance: Experimental evidence," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 100(C).
    17. D’Espallier, Bert & Goedecke, Jann & Hudon, Marek & Mersland, Roy, 2017. "From NGOs to Banks: Does Institutional Transformation Alter the Business Model of Microfinance Institutions?," World Development, Elsevier, vol. 89(C), pages 19-33.
    18. Simon Cornée & David Masclet & Gervais Thenet, 2012. "Credit Relationships: Evidence from Experiments with Real Bankers," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 44(5), pages 957-980, August.
    19. Vollmer, Teresa & von Cramon-Taubadel, Stephan, 2019. "The influence of Brazilian exports on price transmission processes in the coffee sector: a Markov-switching approach," Department of Agricultural and Rural Development (DARE) Discussion Papers 291497, Georg-August-Universitaet Goettingen, Department of Agricultural Economics and Rural Development (DARE).
    20. Janda, Karel & Zetek, Pavel, 2014. "Mikrofinanční Revoluce: Aktuální Kontroverze A Výzvy [Microfinance Revolution: Recent Controversies And Challenges]," MPRA Paper 54098, University Library of Munich, Germany.
    21. Niels Hermes & Marek Hudon, 2018. "Determinants Of The Performance Of Microfinance Institutions: A Systematic Review," Journal of Economic Surveys, Wiley Blackwell, vol. 32(5), pages 1483-1513, December.

    More about this item

    Keywords

    Small business finance; Income reporting; Asymmetric information; Bogus pipeline; Randomized controlled trial;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:zbw:daredp:1702. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ZBW - Leibniz Information Centre for Economics (email available below). General contact details of provider: https://edirc.repec.org/data/iagoede.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.