Journal Article
New Ventures and their Credit Terms
Using UK bank data for 466 new venture loan applications, we explore the determinants of interest margin, the sanctioning decision and the amount borrowed when these factors are considered simultaneously. Collateral levels greatly influence the size of credits to new ventures, a finding consistent with existing work on firm foundation rates and assets (Black et al., Economic Journal 106, 60–75, 1996; de Meza and Webb, The Economic Journal 109, 153–163, 1999; Evans and Jovanovic, Journal of Political Economy 97(4), 808–827, 1989; Holtz-Eakin et al., 1994). Consistent with the RAND Journal of Economics 25, 334–347, Diversionary Models of debt, firms with larger credits enjoy discounted interest margins even when we have controlled for firm size.
Key Words
- collateral
- entrepreneurship
- information asymmetry
- interest margins