Adverse selection and moral hazard in the Japanese public credit guarantee schemes for SMEs

Kuniyoshi Saito, Daisuke Tsuruta 14 November 2014

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Credit rationing caused by capital market imperfections is widely seen as an important phenomenon in the loan market, especially for small and medium enterprises (SMEs). Among various ways of alleviating the problem, credit guarantee schemes are one of the most important policy tools in many countries. An economic rationale for such public intervention is that it can enhance efficiency by providing additional funds for SMEs that are in fact healthy but unable to secure enough loans because of the informational gap between lenders and borrowers.

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Topics:  Financial markets

Tags:  credit rationing, SMEs, credit, public guarantees, Japan, capital markets, asymmetric information, moral hazard, adverse selection, loan guarantees, insurance

Do all firms have equal access to external financing?

Neil Kay, Gavin Murphy, Conor O'Toole, Iulia Siedschlag, Brian O'Connell 29 June 2014

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The proportion of bank loan acceptances has fallen significantly following the crisis, along with the level of enterprise investment. The sharpest falls in both have been in countries hardest hit by the crisis. While in a number of countries – such as Finland, Malta, and Sweden – the declines have been modest, in others – such as in Bulgaria, Ireland, Denmark, Lithuania, Spain, and Greece – they have approached or exceeded 30%.

Figure 1. Percentage change in bank loan acceptances

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Topics:  EU policies Financial markets

Tags:  investment, lending, credit, Finance, SMEs, credit rationing, borrowing, information asymmetries

Greater inequality and household borrowing? New evidence from household data

Olivier Coibion, Yuriy Gorodnichenko, Marianna Kudlyak, John Mondragon 29 January 2014

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The financial crisis of 2008–09 was preceded by an exceptional rise in borrowing by US households, accounted for primarily by a rise in mortgage debt. There are two main views about the source of this ‘great leveraging’:

  • The rise in borrowing reflected ‘credit supply’ factors.

Proponents point to progress in information technology (Sanchez 2009) and rising financialisation of debt (especially mortgages) as increasing the supply of credit, particularly to low-income and high-risk households (Drozd and Serrano-Padial 2013).

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Topics:  Financial markets Poverty and income inequality

Tags:  US, Inequality, debt, credit rationing, subprime mortgage crisis

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