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Banks’ loan rejection rates and the creditworthiness of the banks’ corporate customers

Author

Listed:
  • Abildgren, Kim

    (Danmarks Nationalbank)

  • Drejer, Peter Askjær

    (Danmarks Nationalbank)

  • Kuchler, Andreas

    (Danmarks Nationalbank)

Abstract
We offer micro-econometric evidence on the relationship between the banks’ loan rejection rates and the creditworthiness of the banks’ small and mediumsized corporate customers in 2007 and 2009-2010 based on a unique Danish firmand bank-level dataset. We find lower acceptance rates for applications for bank loans from firms with weak economic performance than for firms with strong economic performance. This was the case both prior to but especially during the financial crisis in 2009-2010, where firms with higher profit ratios, solvency ratios and liquidity ratios had a significantly higher probability of having their loan application accepted than firms with poor economic performance. Firms that did not apply for debt financing in 2009-2010 due to fear of rejection or high interest rates had weaker economic performance measured by solvency ratio, profit ratio, short-term debt ratio and liquidity than firms which applied for debt finance.

Suggested Citation

  • Abildgren, Kim & Drejer, Peter Askjær & Kuchler, Andreas, 2013. "Banks’ loan rejection rates and the creditworthiness of the banks’ corporate customers," Nationaløkonomisk tidsskrift, Nationaløkonomisk Forening, vol. 2013(2), pages 207-224.
    • Handle: RePEc:hhs:jdaecn:0038
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    References listed on IDEAS

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    Keywords

    micro-economy;

    JEL classification:

    • A10 - General Economics and Teaching - - General Economics - - - General

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