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MONITORING IN SMALL BUSINESS LENDING: HOW TO OBSERVE THE UNOBSERVABLE
Author(s) -
Sampagnaro Gabriele,
Meles Antonio,
Verdoliva Vincenzo
Publication year - 2015
Publication title -
journal of financial research
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.319
H-Index - 49
eISSN - 1475-6803
pISSN - 0270-2592
DOI - 10.1111/jfir.12082
Subject(s) - unobservable , business , reputation , bank credit , small business , set (abstract data type) , financial system , economics , finance , econometrics , computer science , social science , sociology , programming language
In this article we investigate the determining factors of bank monitoring in small business lending. Unlike previous studies that rely on proxies of a bank's monitoring effort, we use a large and unique data set that includes the number of monitoring contacts per year between a European bank and a large number of small firms from 2009 to 2012. Our main results highlight that the frequency of a bank's monitoring effort is negatively related to the firm's reputation and the strength of the bank–firm relationship, and positively related to the bank–borrower proximity and the borrower's credit risk level.