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Procedia - Social and Behavioral Sciences 109 ( 2014 ) 753 – 757

1877-0428 © 2014 The Authors. Published by Elsevier Ltd.

Selection and peer review under responsibility of Organizing Committee of BEM 2013. doi: 10.1016/j.sbspro.2013.12.539

ScienceDirect

2

nd

World Conference On Business, Economics And Management -

WCBEM 2013

Degree of guarantee rationing and banking relationship of

spanish SME

Alaitz Mendizabal

a

*, Marian Zubia

b

, Aitziber Lertxundi

c

a Department of Financial Economics II,University of the Basque Country, Oñati Plaza 1,20018 Donostia, Spain b Department of Applied Economics III,University of the Basque Country, Oñati Plaza 1,20018 Donostia, Spain c Institute of Applied Business Economics,University of the Basque Country, Lehendakari Agirre 83, 48015 Bilbao, Spain

Abstract

The impact of banking relationships on SME credit rationing has been widely discussed in the literature, although the analysis of guarantee rationing has perhaps received the least attention. In our opinion, this analysis should adopt a multi-dimensional focus instead of being treated separately as in previous studies. To this end, this rationing is quantified in aggregated form, through the degree of guarantee rationing. The banking relationship characteristics of SMEs in Spain that affect this phenomenon are analyzed empirically applying Multiple Linear Regression. The recommendations to the SME about their connection with the banking entity to bear a lesser degree of guarantee rationing, it is to keep fewer banking relationships and a higher trust level with the financial institutions.

Keywords: Guarantee rationing, number of banking relationships, duration of banking relationship, SME;

1. Introduction

The banking relationship literature views the credit rationing as one of the principal problems facing SMEs, and one of its causes is the existence of asymmetric information between the participants in the relationship (Stiglitz & Weiss (1981)). In this context, the banking relationship is deemed to be a connection between the banking entity and a particular customer that enables an increase in information flow and trust between both parties. In others words, consolidation of the banking relationship between an SME and a banking entity appears to be an ideal vehicle for both parties to increase mutual information, reducing information asymmetries and thus contributing to less credit rationing.

Although the impact of the banking relationship on SME credit rationing has been widely analyzed in the literature, guarantee rationing has perhaps received the least attention of all. In addition, in previous empirical studies different measures for guarantee rationing have been used in each case, individually, considering them with sufficiently differentiated nuances of the same concept. In this work, guarantee rationing is treated as a heterogeneous reality and, in accordance; a multi-dimensional focus will be adopted, integrating it in the degree of guarantee rationing.

The aim of this work is to identify the behaviors associated with the connection of an SME with a banking entity that bring a lesser degree of guarantee rationing. This being the objective, in first place, there is a review of studies

* Corresponding Author: Alaitz Mendizabal. Tel.: +34-943-015773

E-mail address: alaitz.mendizabal@ehu.es © 2014 The Authors. Published by Elsevier Ltd.

Selection and peer review under responsibility of Organizing Committee of BEM 2013. Open access under CC BY-NC-ND license.

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associated with guarantee rationing and the banking relationship. Then, an empirical study is performed regarding SMEs in Spain to analyze the characteristics of the banking relationship that affect the degree of guarantee rationing. And, lastly, the main conclusions are drawn from the analysis made, comparing the results with the work just cited. 2. Guarantee rationing and banking relationship

In the conclusions of researches into the impact of the banking relationship on guarantee rationing divergence is evident, which may be due to different reasons, in relation, for example, to the characteristics of the setting in which the banking relationship analyzed takes place and/or those associated with the type of measure used for guarantee rationing and the research methodology used in each case. However, in the main a negative relation is discerned with the duration of the banking relationship, while there is less consensus in the results or conclusions regarding the number of banking relationships and trust level, as can be appreciated in Table 1.

Table 1: Results of empirical studies into the impact of the banking relationship on guarantee rationing

VARIABLES RESULTS Number of banking

relationships

Positive relation: Harhoff & Körting (1998); Ziane (2004)

Negative relation: Machauer & Weber (1998); Machauer & Weber (2000); Brau (2002); Voordeckers & Steijvers (2006)

Non-significant relation: Hernández & Martínez (2006) Duration Positive relation: Hernández y Martínez (2006)

Negative relation: Berger & Udell (1995); Harhoff & Körting (1998); Degryse & Van Cayseele (2000); Lehmann & Neuberger (2001); Bodenhorn (2003); Chakraborty & Hu (2006); Voordeckers & Steijvers (2006)

Non-significant relation: Machauer & Weber (1998); Brau (2002); Cardone et al. (2005); Hernández & Martínez (2010)

Trust level Positive relation: Hernández & Martínez (2010) Negative relation: Harhoff & Körting (1998) Non-significant relation: Lehmann & Neuberger (2001) 3. Empirical Study

3.1.Population and information collection method

The population is constituted by Spanish SMEs that, on one hand, in terms of sector of activity, do not belong to the financial intermediation and business services sector, which is usually omitted due to its relation with the subject under analysis in this study; and that, on the other, in terms of business size, have ten or more employees, excluding micro-enterprises. Via the stratified random sampling, a sample of 700 Spanish SMEs was obtained, with a margin of error of +/- 3.7% for a trust level of 95%.

The information needed for the research was obtained by holding a telephone survey during the months of April and June 2011 with those directly in charge of banking relationships in SMEs. For this purpose, through the literature review, a questionnaire was drawn up.

3.2.Variables

The variables for banking relationship characteristics that will be considered in the empirical study derive from the variables employed in the different previous studies, as follows: the number of banking entities with which the SME works (N); the duration of the banking relationship with the main institution, in years (D); and the mutual trust level perceived by the SME, measured by means of a Likert scale with a range of values of one (none) to five (a lot) for the mutual trust perceived by the enterprise (TRUST).

Guarantee rationing being a heterogeneous reality, various variables will be used jointly to measure it to enable a more real and complete approach. In concrete terms, an additive variable will be created as the sum of three

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descriptive variables, thereby attaining the concept for the degree of guarantee rationing (RAGA). These variables were selected through the application of data mining techniques, in the specific form of Bayesian network multivariate learning algorithms, between the variables used in previous studies. So, the following variables will be included: the first refers to a banking entity’s request for guarantees when funding is applied for (RAGAa), that is, a dichotomous variable with a value of one if the response to the request for guarantees is affirmative and zero if it is negative; the second captures the frequency with which the banking entity asks the SME to provide personal guarantees (RAGAb), that is, a polytomous variable with a value of one to five in accordance with whether the enterprise provides personal guarantees with less (1) or more (5) frequency; and the third refers to the request for compensation for the latest credit granted (RAGAc), that is, a dichotomous variable with a value of one if the response to the request for complementary financial services affirmative and zero if it is negative. In addition, before adding these variables, a process of standardization to a common scale of (0.1) took place, as they were initially measured using Likert scales with different ranges.

4. Methodology

Examining banking relationship characteristics carries out analysis of the degree of guarantee rationing. To do so, Multiple Linear Regression is used, via the Ordinary Least Squares (OLS) estimator. Specifically, the stepwise forward procedure will be applied using the criterion of significance based on the probability of F, so that the variables included in the model will per se possess significant coefficients, with a level of significance that is registered in the corresponding table.

To evaluate the goodness of fit of the model obtained, in addition to the level of significance of the estimations arrived at, on the one hand, a combined test of the F statistic is used, permitting analysis of the null hypothesis that all the coefficients are equal to zero, excepting that associated with the constant term; and, on the other hand, the determination coefficient (multiple R2) is utilized, which expresses the percentage of variance of the dependent

variable that is explained by the independent variables. 5. Empirical Results

In this case, the model that was obtained through application of the regression technique to the sample is significant with a determination coefficient of 7.6%, as is reflected in the two last columns of Table 2. The variables in the equation include the number of banking relationships, the estimated coefficient (B) being positive, that is, an increase in the number of banking relationships implies a higher risk of experiencing guarantee rationing; whilst trust level proves significant, with a negative estimated coefficient (B), that is to say, an increase in trust level produces lower risk of being subject to guarantee rationing.

Table 2: Variables in the equation: dependent variable RAGA based on banking relationship characteristics Non-standardised

coefficients

Standardised coefficients

t Sig. Confidence interval of 95%

R2 Sig.

B Std. error Beta Lower

limit Upper limit SAMPLE .076 .000 Constant 1.715 .174 9.835 .000 1.373 2.058 N .099 .018 .223 5.481 .000 .063 .134 TRUST -.173 .039 -.182 -4.47 .000 -.249 -.097

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6. Conclusions

This study has analyzed the guarantee rationing experienced by SMEs in relation with banking relationship characteristics, but considering it in aggregated form, composed, that is, of the different dimensions of the heterogeneous reality captured within the concept of guarantee rationing.

We can appreciate that the variables for the number of banking relationships and trust level prove significant, affecting guarantee rationing positively and negatively, in each case. With reference to the number of banking relationships, a possible explanation for this positive relation may be found in the present environment as defined by the recent financial crisis, which has led to a higher level of mistrust among participants in the financial markets and the ensuing credit squeeze (Carbó, 2009; Gallurt, 2011). In this connection, when SMEs work with fewer banking entities this may mean that the former share more private information with banking entities, whilst a smaller number of banking relationships might produce a less intimate relationship with each of the entities, with less private information being shared by the SMEs with these institutions. The closer relationship seems to help alleviate the negative consequences of credit constraints, manifested in requests for guarantees, during financial crises.

When we come to the second variable, trust level, the negative relation between both variables could due to the fact that the increase in trust level between the SME and the banking entity may result in an increase in the information shared between the parties in the banking relationship, reducing problems stemming from asymmetric information.

Lastly, the variable for duration is not significant in this case. A possible reason for the non-significance of this variable may reside in the fact that, in the present environment defined by the recent financial crisis, owing to the increase in uncertainty and the reigning mistrust among the participants in the financial system, long-lasting relationships cease to be significant for banking entities when determining the conditions for granting funding to SMEs..

Summing up in the light of the results of this study, if SMEs are to experience less guarantee rationing, in general they are recommended to engage in fewer banking relationships, which should be developed seeking the highest possible mutual trust level, thereby producing a decrease in such rationing. In other words, maintaining fewer banking relationships and fostering a greater trust level will enable SMEs to obtain better access to credit, and specifically so where conditions (guarantees) are concerned.

Acknowledgements

Work carried out with the help of the Fundación Kutxa and Fundación FESIDE. References

Berger, A. N., & Udell, G. F. (1995). Relationship lending and lines of credit in small firms finance. Journal of Business, 68 (3), 351-381. Bodenhorn, H. (2003). Short-term loans and long-term relationships: Relationship lending in early America. Journal of Money, Credit and Banking, 35 (1), 485-504.

Brau, J.C. (2002). Do banks price owner-manager agency costs? An examination of small business borrowing, Journal of Small Business Management, 40 (4), 273-286.

Carbó, S. (2009). Sector bancario, crisis y crédito en España. Clm.economía: Revista económica de Castilla - La Mancha, 14, 9-29.

Cardone, C., Casasola, Mª J. & Samartín, M. (2005). Do banking relationships improve credit conditions for Spanish SMEs?, Working Paper 05-28, Business Economics Series, Universidad Carlos III Madrid, 1-36.

Chakraborty, A. & Hu, C.X. (2006). Lending relationships in line-of-credit and no-line-of-credit loans: evidence of collateral use in small business data. Journal of Financial Intermediation, 15, 86-107.

Degryse, H. & Van Cayseele, P. (2000). Relationship lending within a bank-based system: Evidence from European small business data. Journal of Financial Intermediation, 9 (1), 90-109.

Gallurt, J.M. (2011). Las dificultades de la financiación de la pyme ante la asimetría de la información y los mecanismos para salvarlas. In

Publicaciones XV Foro Iberoamericano de Sistemas de Garantía, Méjico, (pp.1-95).

Harhoff, D. & Körting, T. (1998). Lending relationships in Germany. Empirical evidence from survey data. Journal of Banking and Finance,22 (10-11), 1317-1353.

Hernández, G. & Martínez, P. (2006). Efecto de las relaciones bancarias sobre la deuda de las PYME. Revista Europea de Dirección y Economía de la Empresa, 15 (3), 9-26.

Hernández, G. & Martínez, P. (2010). Relationship lending and SME financing in the continental European bank-based system. Small Business Economics34, 465-482.

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Lehmann, E. & Neuberger, D. (2001). Do lending relationships matter? Evidence from bank survey data in Germany. Journal of Economic Behaviour & Organization, 45 (4), 339-359.

Machauer, A. & Weber, M. (1998). Bank behaviour based internal credit ratings of borrowers. Journal of Banking and Finance, 22 (10-11),

1355-1383.

Machauer, A. & Weber, M. (2000). Number of bank relationships: An indicator of competition, borrower quality, or just size?. Centre for Financial Studies Working Paper 2000 (06), 1-24.

Stiglitz, J. & Weiss, A. (1981). Credit rationing in markets with imperfect information. American Economic Review, 71 (3), 393-410.

Voordeckers, W. & Steijvers, T. (2006). Business collateral and personal commitments in SME lending. Journal of Banking and Finance, 30 (11), 3067-3086.

Figure

Table 1: Results of empirical studies into the impact of the banking relationship on guarantee rationing
Table 2: Variables in the equation: dependent variable RAGA based on banking relationship characteristics   Non-standardised

References

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