Borrower discouragement: the role of informal turndowns

This research seeks to add to our understanding about discouraged borrowers by examining the roots of discouragement. It examines the role of informal turndowns in which a commercial lender verbally informs a SME owner that if a formal loan application were to be advanced, it would likely be denied. This aspect of demand-side constraints to accessing finance has received scant attention in research. The presence of discouraged borrowers could be evidence of a market imperfection; however, informal turndowns represent an efficient mechanism in SME debt markets providing an explanation for a type of borrower discouragement. This research finds more established firms are more likely to suspend formal loan applications through informal talks with their banks rather than being discouraged by their own judgement. In addition, those small business owners who have a satisfactory relationship with their banks are more likely to self-ration themselves rather than conduct an informal inquiry with their banks before deciding not to apply

Hidden champions or black sheep? The role of underpricing in the German mini-bond market

Governments around the world have set up fund-of-fund programs to increase the supply of venture capital financing to young growth-oriented firms. In these programs, a government fund-of-fund acts as limited partner in a venture capital fund. The venture capital investment process is hereby delegated to external investors, which were selected by the government fund-of-fund. We investigate employment growth in 108 portfolio companies that benefited from the ARKimedes fund-of-fund in Flanders. Accounting for the heterogeneity in the types of venture capital investors managing hybrid funds, and the associated goal diversity and resource endowments, we find that portfolio companies backed by hybrid independent venture capital funds show greater employment growth than those backed by hybrid captive or hybrid government venture capital funds. This finding is relevant because it indicates that the financial objectives of hybrid independent venture capital funds are highly compatible with the government’s objective of employment growth, as providing companies with superior monitoring and value adding services with the objective of realizing a successful exit creates employment in the process

Reward-based crowdfunding of entrepreneurial projects: the effect of local altruism and localized social capital on proponents’ success

Despite the omnipresent reach of the Internet, evidence exists that geography matters in crowdfunding. This paper shows that some salient characteristics of the geographical area in which entrepreneurs reside affect the success of the crowdfunding projects they propose. Specifically, we theoretically discuss and empirically document that the altruism of people residing in the area (i.e., local altruism) increases the likelihood of success. Moreover, the strength of this effect depends on the level of social capital in the area (i.e., localized social capital). Building on the extant literature, we claim that localized social capital has two main dimensions: the social relations among residents and their compliance with social norms. Using a dataset of 618 proponents that launched 457 crowdfunding projects on 13 Italian reward-based platforms, we find that social relations magnify the effect of local altruism. Conversely, compliance with social norms does not have any moderating effect