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Assessing the Reliability of Self‐reported Income Information in Informal Small Business Lending through a Bogus Pipeline Experiment
Author(s) -
Römer Ulf,
Mußhoff Oliver,
Weber Ron,
Turvey Calum G.
Publication year - 2018
Publication title -
journal of agricultural economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.157
H-Index - 61
eISSN - 1477-9552
pISSN - 0021-857X
DOI - 10.1111/1477-9552.12263
Subject(s) - loan , small business , business , cash flow , actuarial science , coping (psychology) , economics , finance , psychology , psychiatry
Coping with asymmetric information plays a major role in successful small business lending. Our purpose is to determine if small business applicants report their income information correctly when requesting a loan. We use a randomised controlled trial bogus pipeline experiment, established during a typical cash‐flow analysis of a bank for small businesses in the Philippines. The bogus pipeline approach is commonly applied in social science and aims to increase the rate of truth telling by informing participants that answers will be verified by a lie detector. The experimental data, which include 243 observations of credit clients that are mainly from the agricultural and food value chain, served to identify asymmetric information. Additionally, debtors’ repayment behaviour for approved loans was observed by the bank. Our results indicate that loan applicants of the treatment group report lower incomes, an effect which is most pronounced in lower income quantile. Our analyses also reveal higher loan delinquencies in the control group.